Question

What is the return on net operating assets (RNOA), to two decimal places, if the company has an asset turnover of 2.9 and a profit margin of 5%?

Answer 1

ANSWER = 14.5%

return on net operating assets (RNOA) = (net profit /  total assets) *100

Here

asset turnover ratio = 2.9

asset turnover ratio = net sales / total assets

profit margin = 5%

profit margin = net profit / net sales

net profit / net sales =5% ------------------------------------- (1)

net sales / total assets = 2.9 -----------------------------------------(2)

i.e

net sales = total assets *  2.9 -------------------------------------(3)

Substituting(3) in equation (1)

net profit /  (total assets *  2.9) =5%

net profit /  total assets = (5% * 2.9 ) *100

= 14.5%