Question

By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm's operating profit margin is 5% on sales of $4 million? Assume that the reduction in assets has no effect on sales or profit margin

Answer 1

Answer:

ROA= 10%  TA = 2.000.000  

ROA=12%  TA         = 1.666.667

Reducction in assets    333.333

Explanation:

ROA=Net income/Average Total Assets

ROA = (net income / sales) x (sales / Total Assets)

ROA = Margin x Average total assets

10%=5%X(4000000/TA) 2,0 = 4000000/TA

12%=5%X(4000000/TA)  2,4 = 4000000/TA

ROA= 10%  TA = 2.000.000

ROA=12%  TA = 1.666.667