Question

Last year Café Creations... Last year Café Creations, Inc. had an ROA of 25 percent, a profit margin of 12 percent, and sales of $4 million. What is Café Creations total assets? A. $12m B. $0.48m C. $1.00m D. $1.92m

Answer 1

D. $1.92m

Step-by-step explanation:

The formula to calculate ROA is:

ROA= Net income/Assets

From this formula, we can determine that the assets can be calculated by:

Assets=Net income/ROA

We have that ROA is 25% and we have to calculate the net income. We can do it using the profit margin as this indicates the percentage of revenue left after all expenses have been deducted from the sales twhich is the net income. So,

Net income= Sales*Profit margin

Net income= $4* 12%= $0,48 million

Then, we replace the values to find the assets:

Assets= $0,48/0,25= $1,92 million

The Café Creations total assets are $1,92 million.