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 16.1 percent. Sales were $1,780,000, the total debt ratio was .31, and total debt was $657,000. What is the return on assets (ROA)

Answer 1

Answer:

11.11%

Explanation:

The computation of the return on assets is given below:

But before that following calculations need to be done

Total assets = Total debt ÷ Total debt ratio

= $657,000 ÷ 0.31

= $2,119,354.839

Total equity = Total Assets - Total Debt

= $2,119,354.839 - $657,000

= $1,462,354.839

Net profit = Total equity × Return on equity

= $1,462,354.839 × 0.161

= $235,439.129

And, finally

ROA = Net profit ÷ Total Assets

= $235,439.129 ÷ $2,119,354.839

= 11.11%