Question

Steeler Manufacturers reported the following information from its income statement and balance sheet: Income Statement: Net Sales = $2,500,000 Gross Profit = $1,200,000 Net Income = $750,000 Balance Sheet: Total Assets, beginning = $10,500,000 Total Assets, ending, = $13,500,000 What is Steeler’s Return on Assets?

Answer 1

Answer:6.25%

Explanation:Return on assets is one of the profitability ratios in accounting that seeks to determine how an organisation has utilized its assets in generating income for the accounting period. It is calculated by dividing the net income for the period by average total assets (i.e. (opening balance of total assets + closing balance of total assets) ÷ 2)

Therefore, for Steeler's Manufacturing, return on assets is calculated as follows:

Average total assets = ($10,500,000 + $13,500,000) ÷ 2 = $12,000,000

Return on assets = ($750,000 ÷ $12,000,000) × 100% = 6.25%