Question

A fire has destroyed a large percentage of the financial records of the Inferno 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)

Answer 1

Answer:

9.98%

Explanation:

The total debt was $651,000

And, the total debt ratio is 0.33

So by considering the above information, we can find out the total assets value which is

= $651,000 ÷ 0.33

= $1,972,727.27

Now according to the accounting equation

The total assets = Total liabilities + owners equity

$1,972,727.27 = $651,000 + owners equity

So, owners equity = $1,321,727.27

And, the return on equity is

Return on equity = (Net income) ÷ (total equity)

14.9% = Net income ÷ $1,321,727.27

Hence, net income = $196,937

And, the return on assets equal to

= (Net income) ÷ (Total assets)

= $1,321,727.27 ÷ $1,972,727.27

= 9.98%