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L06. How do you use financial statements to evaluate business performance? a) What is the formula for return on assets? b) Net income is s10,00 0 and total assets are $150,000 for the current year. Total assets for the previous year was $100,000. What is the ROA?
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Answer #1
STEP 1: FORMULA
Return on Assets = Net Income / Average Assets of Company
Return on Assets = ( Opening Assets + Closing Assets ) / 2
Opening Assets = $                 1,00,000
Closing Assets $                 1,50,000
Total Assets = $                 2,50,000
Average Assets = Total Assets / 2 = $                 1,25,000
STEP 2: CALCULATION OF THE RATIO
Return on Assets =
Net Income = $                     10,000
Divide By "/" By
Average Assets $                 1,25,000
Return on Assets = 8.00%
STEP 3: ANSWER
Answer = Return on Assets = 8.00%
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