Nerk pharm. net profit margin was 10% on sales of $2,000,000. Debt to assets was 40%...

Nerk pharm. net profit margin was 10% on sales of $2,000,000. Debt to assets was 40% with total liabilities of $500,000. How much was the Return on Assets?

Expert Solution

Ans.

Return on assets = Net income / Total assets * 100

= $200,000 / $1,250,000 * 100

= 16%

*Working notes:

*Calculation of net income:

Net income = Sales * Net profit margin

= $2,000,000 * 10%

= $200,000

*Calculation of total assets:

Debt to total assets = Total liabilities / Total assets

Total assets = Total liabilities / Debt to assets

Total assets = $500,000 / 40%

Total assets = $1,250,000

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