Question

The ABC Company has a net income of $56,000, assets at the beginning of the year are $263,000 and assets at the end of the year are $313,000. What is the company’s return on assets?

Answer 1

19.4%

Explanation:

Answer 2

19.4 %

Explanation:

The formula for return on assets (ROA) is

ROA = Net income /Total assets × 100 %

Since assets vary, we use the average of the total assets over the period.

Calculate the average total assets

At beginning of year, total assets = $263 000

At end of year, total assets = $313 000

Average = (313 000 + 263 000)/2

Average = 576 000/2

Average = $288 000

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Calculate the ROA

Net income = $56 000

ROA = 56 000/288 000 × 100 %

ROA = 0.194 × 100 %

ROA = 19.4 %

The company’s return on assets is 19.4 %.