Concept 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 Return on assets is as follows:
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 Equity:
Return on Equity is the
The Average stock holder's equity calculated with the help of following formula:
To Indicate:
The Difference between the Return on Total assets and Return on Equity and the higher value.
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Survey of Accounting (Accounting I)
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- Which one of the following methods is based on net profit rather than cash flows? a. net present value b. payback c. internal rate of return d. accounting rate of return e. profitability indexarrow_forwardhow would you value the assets, liabilites and equity and stock values ?arrow_forwardWhich of the following is an idicator of financial risk ? a) Net Sales / Total Assets b) Total Liabilities / Equity c) Return on Assets d) Return on Equityarrow_forward
- Liquidity. The net profit / sales percentage measures which of the following? O Return on investment. O Risk. Profitability.arrow_forward2. How would you describe the correlation between risk and return in investments, and what are the various types of income that investors consider from their standpoint?arrow_forwardBased on the Liquidity ratio, which ratio determine stability, earning power and capital? Explain the formula and its impact & importance. Choose one only.arrow_forward
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