Question

Dawson Electronic Services had revenues of $116,000 and expenses of $68,000 for the year. Its assets at the beginning of the year were $418,000. At the end of the year assets were worth $468,000. Calculate its return on assets.
a) 11.5%
b) 26.2%
c) 27.8%
d) 10.3%
e) 10.8%

Answer 1

Answer:

The return on assets is;

e) 10.8%

Explanation:

The return on assets is a measure of how profitable a company is with respect to its total assets. It gives one an idea of how efficient the company's assets are being utilized. It is usually represented as a percentage. In the business sense, efficiency is determined by how much the management utilizes the limited resources to generate revenue. In this way, the return on assets tries to determine how efficient a business utilizes it's assets to generate profits or losses in some cases. The profits or losses are calculated from the net revenue after accounting for all the expenditure.

The return on assets is calculated using the formula below;

ROA=(N.I/T.A)×100... equation 1

where;

ROA=return on assets

N.I=net income

T.A=total assets

In our case;

ROA=unknown

N.I=Total revenue-total expenditure... equation 2

and;

total revenue=$116,000

total expenditure=$68,000

N.1=116,000-68,000=$48,000

Net income=$48,000

Total assets=(Assets at the beginning of the year+assets at the end of the year)/2... equation 3

where;

Assets at the beginning of the year=$418,000

assets at the end of the year=$468,000

replacing;

Total assets=(418,000+468,000)/2=$443,000

Use the values to substitute in equation 1 above;

ROA=(48,000/443,000)×100=10.84%

The return on assets=10.8%