Question

If a firm has $230,000 total assets and $150,000 in net income reported on its 2016 financial statements, $220,000 total assets and $160,000 net income on its 2015 financial statements, and $200,000 total assets and $170,000 total income on its 2014 financial statements, then the firm's return on assets (ROA) for 2016 is __________.

65.2%

(Net income for 2016) / (Total assets of 2016 + Total assets of 2015) / 2

equal to net income for 2016 divided by total assets of 2016

(Net income for 2016) / (2016 total assets + 2015 total assets + 2014 total assets)

Answer 1

Compute the average total assets of the company, using the equation as shown below:

Average total assets = (Year 2015 total assets + Year 2016 total assets)/ 2

                                 = ($220,000 + $230,000)/ 2

                                 = $225,000

Hence, the average total assets of the company are $225,000.

Compute the return on assets for 2016, using the equation as shown below:

Return on assets = Net income/ Average total assets

                           = $150,000/ $225,000

                           = 66.666666666%

Hence, the return on assets for 2016 is 66.666666666%.