Question

Lake inc. and river inc. reported net incomes of $800,000 and $1,000,000 respectively, for the most recent fiscal year. both companies had 200,000 shares of common stock issued for $10 per share, with all shares still outstanding. the market price per share of lake’s stock was $50, while river’s sold for $85 per share. what is lake inc.'s return-on-assets ratio?

Answer 1

Answer:

ROA= 8%

Explanation:

Return on assets is defined as the revenue that an asset generates in a particular period.

ROA shows how efficiently a manager is generating income from the companie's assets.

The formula is

Return on asset = Net income ÷ Ending Assets

Net income= $800,000

Ending asset= Price of shares * Number of shares

Ending asset= 50 * 200,000 = $10,000,000

ROA= 800,000 ÷ 10,000,000

ROA= 0.08= 8%

A ROA of above 5% is considered o be a good return on investment