Question

Shelton inc. has sales of $23.8 million; total equity of $31.3 million; and total debt of $16.7 million. if shelton's profit margin is 8 percent, calculate the company's return on assets (roa).

Answer 1

Sales = $23.8 million

Total equity = $31.3 million

Total debt = $16.7 million

Profit margin = 8% = 0.08

Return of assets = ?

First we calculate the total assets:

Total assets = Total debt + Total equity

= $16.7 million + $31.3 million = $48 million

Now find net income by using this formula:

Profit margin = Net income / Sales

Net income = Profit Margin × Sales  = 0.08 x 23,800,000 = $1,904,000 Now calculate Return of assets: Return on assets = Net income / Total assets  =$1,904,000 / 48,000,000

Return on assets = 3.967%