Question

Return on assets is calculated as: Multiple Choice

A. Net Income divided by total assets.
B. Ending total assets divided by net income.
C. Net Income divided by ending total assets.
D. Net Income divided by average total assets.

Answer 1

Return on assets is calculated by dividing Net Income by average total assets, which makes option D the correct answer.

Step-by-step explanation:

Return on assets (ROA) is a financial ratio that measures the profitability of a company relative to its total assets. The correct way to calculate ROA is by dividing Net Income by average total assets during a specific period. This is a key indicator of how effectively a company is using its assets to generate profits.

The calculation for ROA is:

1. Find the Net Income on the company's income statement.
2. Calculate average total assets by adding the beginning and ending total assets for a period and then dividing by two.
3. Divide the Net Income by the average total assets to find the ROA.

So, the correct answer to the question is:

D. Net Income divided by average total assets.