Question

Oahu Industries' average total assets for the year are $5,000,000, its average total stockholders' equity for the year are $2,500,000, its net income is $700,000, its gross margin is $2,500,000, and its net sales are $10,000,000. What is Oahu's return on assets?

Answer 1

Oahu Industries' Return on Assets (ROA) is 14%, calculated by dividing the net income of $700,000 by the average total assets of $5,000,000 and then multiplying by 100.

Step-by-step explanation:

The Return on Assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate net income. To calculate Oahu Industries' ROA, you use the following formula:

ROA = (Net Income / Average Total Assets) × 100

For Oahu Industries, the net income is $700,000, and the average total assets are $5,000,000. Plugging these into the formula gives us:

ROA = ($700,000 / $5,000,000) × 100

ROA = 0.14 × 100

ROA = 14%

Therefore, Oahu's Return on Assets is 14%, indicating that for every dollar of assets, Oahu Industries generated 14 cents of net income over the period.