Multiple Choice
XYZ Company had a profit margin of 8.8% and total asset turnover of 0.77. What is XYZ's Return on Assets?
14. Financial Statement Analysis
Ratios: Profit Margin x Asset Turnover = Return On Assets
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A company had a profit margin of 6.1%. The company's net sales were \$3,600,000 and Cost of Goods Sold was \$600,000. If total assets were \$3,450,000 at the beginning of the year and \$4,210,000 at the end of the year, what is the company's return on assets?
A
4.8%
B
5.2%
C
5.7%
D
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Verified step by step guidance1
Calculate the net income using the profit margin. The profit margin is given as 6.1%, and net sales are \$3,600,000. Use the formula: Net Income = Profit Margin * Net Sales.
Determine the average total assets for the year. This is calculated by taking the sum of the total assets at the beginning and end of the year, then dividing by 2. Use the formula: Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2.
Calculate the return on assets (ROA) using the formula: ROA = (Net Income / Average Total Assets) * 100 to express it as a percentage.
Compare the calculated ROA with the given options to determine which one matches the calculated value.
Verify if the calculated ROA matches the correct answer provided, which is 5.7%.
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