Question

Debbie K. has recently invested in two companies in the hopes of generating a return on her investment. In comparing the financial results of Hill Enterprise and Mountain Agency, Debbie has questions regarding how efficiently and effectively each is using the owned assets. A large amount of funds were used to acquire the assets and she would like to evaluate the results of those acquisitions. Key figures for each company are listed below.

Accounts Hill Enterprise Mountain Agency
Prior Year Asset Balance $ 690,000 $ 988,000
Current Year Asset Balance 810,000 1,050,000
Sales Revenue 900,000 1,200,000
Net Income 152,000 190,000

What is the the return on assets for Hill Enterprise?
a. 20.26%
b. 18.77%
c. 16.89%
d. 22.03%

Answer 1

The return on assets for Hill Enterprise is approximately a. 20.27%.

Step-by-step explanation:

The return on assets (ROA) is a measure of how efficiently a company is using its assets to generate profit. To calculate the ROA, we divide the net income by the average total assets. For Hill Enterprise, the prior year asset balance is $690,000 and the current year asset balance is $810,000. We can calculate the average total assets by adding the prior year and current year asset balances and dividing by 2, giving us ($690,000 + $810,000) / 2 = $750,000.

Now we can calculate the ROA by dividing the net income of $152,000 by the average total assets of $750,000, and then multiplying by 100 to express it as a percentage. This gives us ($152,000 / $750,000) * 100 = 20.27%.

Therefore, the return on assets for Hill Enterprise is approximately 20.27%.