Question

A fire has destroyed a large percentage of the financial records of the Excandesco Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 16.7 percent. Sales were $1,795,000, the total debt ratio was .33, and total debt was $660,000.

What are the total assets? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Total assets            $

What is the total equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Total equity            $

What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Net income            $

What is the return on assets (ROA)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Return on assets             %

Answer 1

Solution:-

a) Total assets = $2,000,000

b)Total Equity = $1,340,000

c) Net income = $223,780

d) ROA               = 11.19%

Calculations:-

We know that ROE = Net income / Equity

Hence to find the return on equity, we need the net income and total equity.

We can use the total debt ratio to find the total assets as:

Total debt ratio = Total debt / Total assets

0.33 = $660,000 / Total assets

Total assets = $2,000,000.00

In balance sheet we know that total assets is equal to total liabilities and equity, we find the total equity is:

Total assets = Total debt + Equity

$2,000,000.00= $660,000 + Equity

Equity = $1,340,000.00

We have the return on equity and the equity. We can use the return on equity equation to find net income is:

ROE = Net income / Equity

0.1670 = Net income / $1,340,000.00

Net income = $223,780.00

Now we find the ROA is:

ROA = Net income / Total assets

ROA = $223,780.00/ $2,000,000.00

ROA = 0.11189 or 11.19%

Please feel free to ask if you have any query in the comment section.