Question

Relevant financial information for Gordon, Inc. andJordan, Inc. for the current year is provided below. ($ in millions) Net sales Net income Total assets, beginning Total assets, ending Gordon, Inc. $3,280 118 1,420 Jordan, Inc. $6,540 132 1,600 2,230 2,020 Based on these data, which of the following is a correct conclusion?
A) Return on Assets is 7.4% for Gordon and 6.5% for Jordan. Thus, Gordon is more profitable than Jordan
B) Return on Assets is 7.4% for Gordon and 6.5% for Jordan. Thus, Gordon is less profitable than Jordan
C) Return on Assets is 7.8% for Gordon and 6.2% for Jordan. Thus, Gordon is more profitable than Jordan
D) Return on Assets is 7.8% for Gordon and 6.2% for Jordan. Thus, Gordon is less profitable than Jordan

Answer 1

Answer:

C) Return on Assets is 7.8% for Gordon and 6.2% for Jordan. Thus, Gordon is more profitable than Jordan

Explanation:

please find attached a clear image of the table used in answering this question

Return on assets = net income / average total assets

average total assets = (beginning assets  + ending asset) / 2

for gordon

average total assets = (1420 + 1600) / 2 = 1510

ROA = 118 / 1510 = 0.078146 = 7.8%

For Jordan,

average total assets = (2,230 + 2,020) / 2 = 2125

ROA = 132 /  2125 = 0.062118 = 6.2118%

The ROA figure shows how well a company converts assets into net income. The higher the ROA number, the better as it means the firm earns  more money on less investment