Flitter reported net income of $25,500 for the past year. at the beginning of the year the company had $216,000 in assets and $66,000 in liabilities. by the end of the year, assets had increased to $316,000 and liabilities were $91,000. calculate its return on assets:

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Rupicapra Rupicapra · Answer 1 · 2018-09-19T08:24:23+02:00

Answer:

There are two ways in which Return on Assets can be calculated depending on whether we consider Total assets at year-end or average total assets.

[tex]Return on Assets = \frac{Net Income}{Total Assets at year end}[/tex] 1

or

[tex]Return on Assets = \frac{Net Income}{Average Assets}[/tex] 2

Substituting the values in equation 1 we get,

[tex]Return on Assets = \frac{25500}{316000}[/tex]

[tex]Return on Assets = 0.080696203 or 8.07%[/tex]

Substituting values in equation 2 we get,

[tex]Return on Assets = \frac{Net Income}{Average Assets}[/tex]

[tex]Return on Assets = \frac{Net Income}{\frac{Assets at beginning + Assets at year end}{2}}[/tex]

[tex]Return on Assets = \frac{25500}{\frac{216000 + 316000}{2}}[/tex]

[tex]Return on Assets = \frac{25500}{266000}[/tex]

[tex]Return on Assets = 0.095864662 or 9.58%[/tex]