Answer:
ROA = 11.32% ± 1%
Explanation:
Given
Return on equity = 16.9%
Sales = $1,800,000
Total debt ratio = 0.33,
Total debt = $661,000.
First, we need to calculate total assets using the following formula;
Debt Ratio = Total Debt/Total Assets
Total Assets = Total Debt/Debt Ratio.
Substitute in the values of Total Debt and Debt Ratio
Total Assets = $661,000/0.33
Total Assets = $2003030.30
Nexr, we'll calculate the total equity by employing the balance sheet relationship that total assets equal sum of total liabilities (debt) and equity.
Total assets = Total debt + Equity
Equity = Total Assets - Total Debt
Equity = $2003030.30 - $661,000
Equity = $1,342,030.3
Next, we calculate Net Income using the following formula.
Return on Equity (ROE) = Net Income/Equity
Net Income = ROE * Equity
Net Income = 16.9% * $1,342,030.3
Net Income = $226,803.1207
ROA is calculated using the following formula
ROA = Net income / Total assets
ROA = $226,803.1207 / $2003030.30
ROA = 0.113229999915627
ROA = 0.1132 --- Approximated
ROA = 11.32% ± 1%
