A fire has destroyed a large percentage of the financial records of the Excandesco Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 16.9 percent. Sales were $1,800,000, the total debt ratio was .33, and total debt was $661,000. What is the return on assets (ROA)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

ROA = 11.32% ± 1%

Explanation:

Given

Return on equity = 16.9%

Sales = $1,800,000

Total debt ratio = 0.33,

Total debt = $661,000.

First, we need to calculate total assets using the following formula;

Debt Ratio = Total Debt/Total Assets

Total Assets = Total Debt/Debt Ratio.

Substitute in the values of Total Debt and Debt Ratio

Total Assets = $661,000/0.33

Total Assets = $2003030.30

Nexr, we'll calculate the total equity by employing the balance sheet relationship that total assets equal sum of total liabilities (debt) and equity.

Total assets = Total debt + Equity

Equity = Total Assets - Total Debt

Equity = $2003030.30 - $661,000

Equity = $1,342,030.3

Next, we calculate Net Income using the following formula.

Return on Equity (ROE) = Net Income/Equity

Net Income = ROE * Equity

Net Income = 16.9% * $1,342,030.3

Net Income = $226,803.1207

ROA is calculated using the following formula

ROA = Net income / Total assets

ROA = $226,803.1207 / $2003030.30

ROA = 0.113229999915627

ROA = 0.1132 --- Approximated

ROA = 11.32% ± 1%

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