Final answer:
The return on assets for TJ's is calculated by dividing its net income, which is the product of its annual sales and profit margin, by its total assets, the sum of its total debt and total equity. The calculation results in an ROA of 8.02%.
Step-by-step explanation:
The question asks us to calculate the return on assets for TJ's, given its annual sales, total debt, total equity, and profit margin. The return on assets (ROA) measures how effectively a company uses its assets to generate profit. It's a key profitability ratio that investors use to gauge the efficiency of a company's management at using assets to generate earnings. ROA is calculated by dividing net income by total assets. Since TJ's profit margin is 5.63 percent, we first calculate the net income by applying this percentage to the annual sales:
Net Income = Annual Sales × Profit Margin = $813,200 × 5.63% = $45,783.36
Next, we find the total assets by adding total debt and total equity:
Total Assets = Total Debt + Total Equity = $176,000 + $395,000 = $571,000
Finally, we calculate ROA:
ROA = Net Income ÷ Total Assets = $45,783.36 ÷ $571,000 = 0.0802 or 8.02%
Thus, TJ's return on assets is 8.02%.