Question

4-7. (Analyzing operating return on assets) In 2015, Noble Corporation earned an operating profit margin of 15 percent and realized total asset turnover of 2.

a. Calculate the operating return on assets in 2015.

Answer 1

Operating Return on Assets = Operating income/ Total Assets×100

Operating Margin = Operating income/ sales ×100

Total Assets turnover = Sales / Total Assets

By multiplying Operating Margin and Total Assets Turnover we get Operating Return on Asset

= Operating Margin × Total Assets Turnover

=(Operating income/Sales) ×( Sales/ Total Assets)

= Operating Income/ Total Assets

(Denominator sales of Operating Margin and Numerator sales of total Assets Turnover get cancelled)

= Operating Return on Asset

Now substituting value

Operating Return on Assets = Operating Margin × Total Assets Turnover

Operating Return on Assets= 15%×2 = 30% or 0.3

a)Operating Return on Assets in 2015 is 30%