Question

An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. in 1999, its net sales were $2,100,000, and its operating profit margin equaled $42,000. calculate the store's return on assets.

Answer 1

Return on assets (ROA) is the measure of how well the company uses its assets to generate earnings. It is usually expressed in percentage and is computed as:

ROA = Net Income / Total Assets
         = $42,000/$2,800,000
         = 1.5%

Thus, the store's ROA is only 1.5%