Cavo Inc. has a profit margin of $5\mathrm{.}8\%$ on sales of $$14,500,000.$ If the firm has debt of $$7\mathrm{.}300,000$ and total assets of $$11,200,000,$ what is the firm's ROA?

Ans:

To calculate the firm's Return on Assets $($ROA$),$ we will use the following formula:

ROA $=$ N$.$I $/$ Total Assets or NPAT $/$ Total Assets

Given:

Profit Margin $=5\mathrm{.}8\%$

Sales $=$$$14,500,000$

Total Assets $=$$$11,200,000$

Step$-$by$-$Step Calculation:

Calculate Net Income:

Net Income $=\{$ Sales $\}\{$ Profit Margin $\}$

Net Income $=\{$$$14,500,000\}\{0\mathrm{.}058\}$

Net Income $=$$$841,000$

Net Income $=\{$$$14,500,000\}\{0\mathrm{.}058\}$

Net Income $=$$$841,000$

$2.$ Calculate ROA:

ROA $=$$$841,\frac{000}{\text{\$}}11,200,000$

ROA $=0\mathrm{.}075or7\mathrm{.}5\%$

Cavo Inc.$\text{'}$s ROA is $7\mathrm{.}5\%,$ which means the company generates a return of $7\mathrm{.}5\%$ on its total assets. This ratio indicates how efficiently the company is using its assets to generate profit. Can you check if the answer is right or not $?$