Question

Goshen Industrial Sales has sales of $487,600, total equity of $367,700, a profit margin of 5.1 percent, and a debt-equity ratio of .34. What is the return on assets?5.89 percent5.05 percent6.76 percent8.80 percent7.33 percent

Answer 1

The return on assets: 5.05 percent

Step-by-step explanation:

Return on assets (ROA) = (Net Income/ Total Assets)x100%

Profit margin = Net income/ Revenue (Sales)

=> Net income = Profit margin x Sales = 5.1% x $487,600 = $24,867.6

Debt-equity ratio = Total Debt/ Total Equity

=> Total Debt = Debt-equity ratio x Total Equity = 0.34 x $367,700 = $125,018

Following accounting balance:

Total Assets = Total Debt + Total Equity

= $125,018 + $367,700 = $492,718

Regarding the fomula of calculating ROA,

ROA = ($24,867.6/$492,718) x 100% = 5.05%