Question

A fire has destroyed a large percentage of the financial records of the Excandesco Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 14.9 percent. Sales were $1,750,000, the total debt ratio was .33, and total debt was $651,000.

What is the return on assets (ROA)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Return on assets __%

Answer 1

10%

Step-by-step explanation:

For computing the return on assets we have to do the following calculations:

As we know that

Total debt ratio = Total debt ÷ Total assets

0.33 = $651,000 ÷ Total assets

So,

Total assets = $1,972,727.27

Now the total equity is

Total assets = Total debt + Total Equity

$1,972,727.27 = $651,000 + Equity

So,

Equity = $1,321,727.27

Now

ROE = Net income ÷ Equity

0.1490 = Net income ÷ $1,321,727.27

Net income = $196,937

So,

ROA = Net income ÷ Total assets

= $196,937 ÷ $1,972,727.27

= 9.98%

= 10%