# Return on assets

Need help in solving these problems:

1. Given the following financial data: net income/sales = 5%; sales/total assets = 2.5; debt/total assets = 60 percent; compute:

a. Return on assets.

b. Return on equity.

2. Explain in problem 1 why return on equity was so much higher than return on assets.

3. A firm has assets of $1,200,000 and turns over two times per year. Return on assets is 15%. What is its profit margin (return on sales)?

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#### Solution Preview

1. Given the following financial data: net income/sales = 5%; sales/total assets = 2.5; debt/total assets = 60 percent; compute:

a. Return on assets= Net income/Total assets

= net income/sales * sales/total assets ...

#### Solution Summary

The response describes the steps to compute the Return on assets.

$2.19