Question

If you have the following information for the company XYZ financial report for the year ended 2019. What is the Net Return on Assets Ratio (NRAR)?

        

Classifications	Amount in $
Returns and Allowances	2,366
Total Assets for the year ended 2018	50,000
Beginning Inventory	50,000
Total Assets for the year ended 2019	150,000
Purchases	100,000
Other Expenses	10,000
Total Operating Expenses	150,000
Ending Inventory	25,724
Gross Sales	350,642

Answer 1

Step 1:Calculation of Net Profit for the year 2019:

S.No	Particulars	Amount in $
A	Gross sales	350642
B	Returns And Allowances	2366
C	Net Sales( A-B)	348276
D	Opening Inventory	50,000
E	Purchases	100000
F	Closing Stock	25724
G	Cost of Goods sold( D+E-F)	124,276
H	Gross Profit ( C-G)	224,000
I	Operating Expenses	150,000
J	Other Expenses	10,000
K	Net Profit( H-I-J)	64,000

* Cost of Goods sold = Opening Stock + Purchases- Closing Stock

Assuming that Returns and allowances are Sales returns

We know that Net Return on Assets Ratio = Net profit / Average Inventory

Average Inventory = ( Opening Stock + Closing Stock ) /2

= ( 50,000+25724)/2

= $ 37862

Step 2: Calculation of Net Return on Asset ratio

Net Return on Asset Ratio = Net Profit / Average inventory

= $ 64000/$ 37862

= 1.69034

Hence Net Return on Assets ratio is 1.69034.