Question

Net income was $450,000. Beginning and ending stockholders' equity was $4,000,000 and $4,800,000, respectively. Beginning total assets = $6,000,000 and ending total assets = $6,600,000. What was the return on assets (ROA)?

A. 6.188%
B. 7.143%
C. 7.5%
D. 10.227%

Answer 1

Answer:

The correct answer is B. 7.143 %.

Explanation:

Return on assets is a profitability ratio that provides how much profit a company is able to generate from its assets. In other words, return on assets (ROA) measures how efficient a company's management is in generating earnings from their economic resources or assets on their balance sheet. ROA is shown as a percentage, and the higher the number, the more efficient a company's management is at managing its balance sheet to generate income.

The formula to calculate it is given below.

ROA = Net Income/Average total asset * 100

        = 450,000/ 6,300,000*

        = 7.14 %

*= (6,000,000 + 6,300,000)/2