Question

Investment centre.

Compute return on assets for each of the three NIKE shoe divisions below (each division is an investment centre).
Division
Basketball
Soccer
Cross-trainer
Net Income
$4,000,000
$1,500,000
$ 750,000
Assets
$20,000,000
$15,000,000
$10,000,000
Return on Assets
M10/MO.

Answer 1

The return on assets (ROA) for each division can be calculated by dividing the net income by the assets:

ROA = Net Income / Assets

For the Basketball division, the ROA is:

ROA = $4,000,000 / $20,000,000 = 0.20 or 20%

For the Soccer division, the ROA is:

ROA = $1,500,000 / $15,000,000 = 0.10 or 10%

For the Cross-trainer division, the ROA is:

ROA = $750,000 / $10,000,000 = 0.075 or 7.5%

Therefore, the return on assets for the Basketball division is 20%, for the Soccer division is 10%, and for the Cross-trainer division is 7.5%.