Question

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million? Assume that the reduction in assets has no effect on sales or profit margin

Answer 1

ROA= 10% TA = 2.000.000

ROA=12% TA = 1.666.667

Reducction in assets 333.333

Step-by-step explanation:

ROA=Net income/Average Total Assets

ROA = (net income / sales) x (sales / Total Assets)

ROA = Margin x Average total assets

10%=5%X(4000000/TA) 2,0 = 4000000/TA

12%=5%X(4000000/TA) 2,4 = 4000000/TA

ROA= 10% TA = 2.000.000

ROA=12% TA = 1.666.667