Question

Lake Coffee Company reported net income of $64,000 and net sales of $600,000. The company's asset turnover ratio is 3.5 (or 3.5 times). What was the company's return on assets?

Answer 1

The return on assets (ROA) for Lake Coffee Company is approximately 36.6%.

Step-by-step explanation:

The return on assets (ROA) is a financial ratio that measures a company's profitability by determining how efficiently it generates profits from its assets. It is calculated by dividing the net income by the average total assets. In this case, the net income is $64,000 and the asset turnover ratio is 3.5.

To calculate the average total assets, we need to know the beginning and ending total assets. Let's say the beginning total assets were $150,000 and the ending total assets were $200,000. The average total assets would be ($150,000 + $200,000) / 2 = $175,000.

Now we can calculate the return on assets using the formula: ROA = Net Income / Average Total Assets. Plugging in the values, we get: ROA = $64,000 / $175,000 ≈ 0.366 or 36.6%.