Question

Return on Total Assets

A company reports the following income statement and balance sheet information for the current year:

Net income$278,460

Interest expense49,140

Average total assets4,680,000

Determine the return on total assets. If required, round the answer to one decimal place.
%

Answer 1

Answer:

Given information,

Net income is $ 278,460

Interest expense is $ 49,140

Average total assets is $ 4,680,000

Computation of return on total assets is as follows:

Return on total assets = ( Net income + Interest expense ) / Average total assets

= [( $ 278,460 + $ 49,140 ) / $ 4,680,000 ] * 100

= ( $ 327,600 / $ 4,680,000 ) * 100

= 7.0%

Thus, Return on total assets is 7.0%

Note: If the Tax amount would have given then we would have add the same to the net income. In simple terms Return on assets Numerator is Operating income ( Earning Before Interest & Tax )