Question

Nineveh Realty, Inc. has sales of $321,000, total assets of $252,000, and a profit margin of 10.03 percent. What is the return on assets (in percents)?

Answer 1

To calculate Return on Assets we will use the formula

Return on Assets = (Net Income / Average total assets) * 100

Step 1 - Calculation of Net Income

Net Income = Sales * Profit Margin

Where Sales = $321,000

Profit Margin = 10.03%

Therefore Net Income = $321,000 * 10.03%

Net Income = $32,196.30

Step 2 - Calculation of Average total assets

Average total assets = (Opening total assets + Closing total assets) / 2

However the data given in the question only states Total Assets of $252,000 and therefore the Average total assets will be $252,000. The Average of assets would be taken only when data regarding Opening and Closing total assets will be given.

Step 3 - Calculation of Return on Assets

Return on Assets = (Net Income / Average total assets) * 100

Return on Assets = ($32,196.30 / $252,000) * 100

Return on Assets = 12.7763% (Rounded to 4 decimal places)