Final answer:
The formula 'Charge Off dollars / Return on Assets %' is used in finance to calculate the ratio of money written off as loss to the company's profitability as evaluated by the Return on Assets ratio. To perform the calculation, the ROA percentage must first be converted to a decimal form.
Step-by-step explanation:
When you are dealing with the formula 'Charge Off dollars / Return on Assets % =', you are essentially calculating a ratio that compares the amount of money written off as unrecoverable by a company (charge offs) with its overall profitability as measured by Return on Assets (ROA).
The Return on Assets (ROA) percentage is a profitability ratio that indicates how efficient a company is at using its assets to generate earnings. It is calculated by dividing the net income by the company's total assets. Essentially, a higher ROA percentage signifies a more profitable company.
To compute this ratio, you would convert the ROA percentage into its decimal form before division. For example, if a company has $1,000 in charge offs and a ROA of 5%, the equation would look like: $1,000 / 0.05 = $20,000. This result demonstrates the amount of assets that are needed to cover the charge offs based on the company’s profitability.