Question

Return on Total Assets

A company reports the following income statement and
balance sheet information for the current year:
Net income
Interest expense
Average total assets
$386,760
68,250
5,230,000
Determine the return on total assets. If required, round
the answer to one decimal place.
%

Answer 1

The company's return on total assets for the current year is 7.4%

Explanation:

Here are the step-by-step calculations for determining the return on total assets (ROTA) based on the income statement and balance sheet information provided:

Calculate the average total assets for the year by adding the beginning total assets and ending total assets and dividing by 2:

Average Total Assets = ($5,000,000 + $5,460,000) / 2

= $5,230,000

Use the ROTA formula to calculate the return on total assets:

ROTA = Net Income / Average Total Assets

= $386,760 / $5,230,000

= 0.0739

Round the ROTA to one decimal place:

ROTA = 7.4%

Therefore, the company's return on total assets for the current year is 7.4%.