Yoho Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Compute the division's return on assets:
A) 18.6%.
B) 21.3%.
C) 17.3%.
D) 10.4%.
E) 14.7%.

Question

Quizplus · Accepted Answer

Return on assets (ROA) is a ratio that indicates how profitable a company is relative to its total assets. It is calculated by dividing net income by average total assets.

ROA = Net Income / Average Total Assets

To calculate the net income, we need to subtract the cost of goods sold and operating expenses from sales:

Net Income = Sales - Cost of Goods Sold - Operating Expenses
Net Income = $5,375,000 - $3,225,000 - $1,147,000
Net Income = $1,003,000

To calculate the average total assets, we add the beginning and ending total assets and divide by two:

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = $5,800,000

Now we can calculate the ROA:

ROA = Net Income / Average Total Assets
ROA = $1,003,000 / $5,800,000
ROA = 0.173 or 17.3%

Therefore, the best choice is C, 17.3%.

Yoho Company Reported the Following Financial Numbers for One of Its