Question

The following information is from the 2017 annual report of Weber Corporation, a company that supplies manufactured parts to the household appliance industry. Average total assets $ 24,500,000 Average interest-bearing debt 10,000,000 Average other liabilities 2,250,000 Average shareholders' equity 12,250,000 Sales 49,000,000 Interest expense 800,000 Net income 2,450,000 Required: Compute Weber Corporation’s return on assets (ROA) for 2017 using a combined federal and state income tax rate of 40% where needed. Compute the profit margin and asset turnover components of ROA for 2017. Weber’s management believes that various business initiatives will produce an asset turnover rate of 2.25 next year. If the profit margin next year is unchanged from 2017, what will be the company’s ROA?

Answer 1

		Return on Assets (ROA)
		Return on assets= Net income/Average totalassets
	A	Net Income	$2,450,000
	B	Average TotalAssets	$24,500,000
	C=A/B	Return on Assets (ROA)	0.1
		Return on Assets (ROA)(percentage)	10%
		Profit margin=Net Income/Sales
	C	Net Income	$2,450,000
	D	Sales	$49,000,000
	E=C/D	Profit Margin	0.05
		Profit Margin(Percentage)	5%
		Asset Turnover=Sales/Average Total assets
	F	Sales	$49,000,000
	G	Average TotalAssets	$24,500,000
	H=F/G	Asset Turnover	2
	I	Asset Turnover next year=(Sales/Total Assets)	2.25
	J	Profit margin next year=Net income/Sales=	0.05
		ROA (Return on assets) next year:
		Net Income/Totalassets=(Net Income/Sales)*(Sales/TotalAssets)
	ROA=I*J	ROA (Return on assets) next year:	0.1125
		ROA (Return on assets) next year(Percentage)	11.25%