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Return on Assets (ROA)

Return on assets (ROA) ratio is calculated by dividing the firm’s net income after interest and taxes by average total assets. Return on assets is important because a firm’s assets tend to represent the total value of the firm. If we look at the left hand side versus the right hand side of a balance sheet, we note that the firm’s total assets equal the firm’s debt plus equity. Knowing how efficiently management uses assets to create income is an important part of measuring managerial performance.





Often, we break down return on assets in terms of profit margin and asset turnover. In reality, firms often make decisions that accept a trade-off between profit margin and asset turnover. For example, a retailer could offer sales or lower prices that increase turnover but reduce profit margins.





*If we wanted to calculate gross ROA we would use EBIT rather than net income here.

The intuition from these formulas is that firms can increase return on assets by increasing their profit margin or their turnover, or both. However, since we know there is often a trade-off between the two in real life, this is often easier said then done. 

Cash Conversion Cycle,ROA Model and Expenses Related to Sales

[Business Organization and Intellectual Property] Phil Young, founder of the Pedal Pushers Company, has developed several prototypes of a pedal replacement for children's bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy-release stirrup to help smaller children hold their feet on the pedals. The Pedal

Operations Management/Value Chain Case Study: Rock of Ages

Rock of Ages Case Study This assignment is focused on operations strategy and management decision-making. "What do you recommend ROA do to address the management issues?" Include comments about the case you want to make from a management, strategic and/or capacity planning perspective. Identify the problems a

ROA Case (Rock of Ages): Recommendations to management

See attached case file. What is the recommendation ROA do to address the following management issues: How did all the pieces fit together gicen the firm's new strategy? How did the quarry support manufacturing? How did manufacturing support sales? How did they all add value? How did they all work together to achieve a co

Banks and interest rates and capital requirements

Chapter 17 Questions 5. If you are a banker and expect interest rates to rise in the future, would you want to make short-term or long-term loans? 12. If a bank doubles the amount of its capital and ROA stays constant, what will happen to ROE? 15. If a bank is falling short of meeting its capital requirements by $1 millio

How can firms in some industries receive a positive response from analysts and investors with return on assets (ROA) of 1 percent, while in other industries, an ROA of 10 percent is required?

Please respond with at least five sentences to each question 1. How can firms in some industries receive a positive response from analysts and investors with return on assets (ROA) of 1 percent, while in other industries, an ROA of 10 percent is required? 2. How would one determine the viability of a company by looking at its

The answer to Return on total assets

Question 36: Financial statements for Lardy Company appear below: Lardy Company Balance Sheet December 31, Year 2 and Year 1 (dollars in thousands) Year 2 Year 1 Current assets: Cash and marketable securities $ 166 $ 174 Accounts receivable, net 226 182 Inventory 190 188 Prepaid expenses 40 20 Total

A) What is the firm's sustainable growth rate? b) If the firm grows at its sustainable growth rate, how much debt will be issued next year? c) What would be the maximum possible rate if the firm did not issue any debt next year?

A company had net income of $2000 on sales of $50,000 last year. The company paid a dividend of $500. Total assets were $100,000, of which $40,000 was financed by debt. a) What is the firm's sustainable growth rate? b) If the firm grows at its sustainable growth rate, how much debt will be issued next year? c) What wou

Please Help- Ratios

Hello All OTA's, How can I get an OTA to help me with this question? How can I make this question more appealing to answer? I am writing to ask for major help. I am going through my textbook and completing study questions for a forthcoming exam. One of the questions is rather large, and has taken me a while to compose a

ACCOUNTING [Business, Managerial]

ACCOUNTING [Business, Managerial] A firm's net profit margin is 3%, its financial leverage ratio is 2, and its asset turnover ratio is 4. The firm's return on assets is. a. 6% b. 8% c. 12% d. 24% A firm's net profit margin is 3%, its financial leverage ratio is 2, and its asset turnover ratio is 4.

Ratios

The following data are taken from the financial statements of Mercer Company. The data are in alphabetical order. Consider balances as averages if applicable. Accounts Payable $22,000 Net Income $48,000 Accounts Receivable $60,000 Net Sales $400,000

ROA/ROE

Desmond Ray's has annual sales of 600,000,000 Net after tax margin of 6% Sales to assets ratio of 5 What is its return on assets? If Debt/Equity ration is .05, what is the return on equity? Explain in excel