
To Discuss:
The reason for lower ROA in spite of higher return on sales
Introduction:
Return on total Assets:
The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Return on total Assets ratio can be broken into its components as follows:
Profit Margin Ratio:
Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:
Asset Turnover Ratio:
Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

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Chapter 19 Solutions
Investments
- Which of the following is not an investment grade credit rating?* BB+ BBB+ BBB BBB-arrow_forwardCompany A has a capital structure of $80M debt and $20M equity. This year, the company reported a net income of $17M. What is Company A's return on equity?* 117.6% 21.3% 85.0% 28.3%arrow_forward12. Which of the following is the formula to calculate cost of capital?* Total assets/Net debt x Cost of debt + Total assets/Equity x Cost of equity Net debt/Equity x Cost of debt + Equity/Net debt x Cost of equity Net debt x Cost of debt + Equity x Cost of equity Net debt/Total assets x Cost of debt + Equity/Total assets x Cost of equity .arrow_forward
- no ai .What is the enterprise value of a business?* The market value of equity of the business The book value of equity of the business The entire value of the business without giving consideration to its capital structure The entire value of the business considering its capital structurearrow_forward10. The concept of time value of money is that* The cash flows that occur earlier are more valuable than cash flows that occur later The cash flows that occur earlier are less valuable than cash flows that occur later The longer the time cash flows are invested, the more valuable they are in the future The future value of cash flows are always higher than the present value of the cash flows .arrow_forward9. Which of the following is true when a bond is trading at a discount?* Coupon Rate > Current Yield > Yield to Maturity Coupon Rate < Current Yield < Yield to Maturity Coupon Rate = Current Yield = Yield to Maturity Coupon Rate < Current Yield = Yield to Maturity.arrow_forward
- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
