Computing and Interpreting Financial Statement Ratios

Following are selected ratios of Norfolk Southern for 2018 and 2017.

Return on Assets (ROA) Component20182017Profitability (Net income/Sales)25.3%53.2%Productivity (Sales/Average assets)0.3380.319

a. Was the company profitable in 2018? AnswerYesNo

b. Was the company more profitable in 2018 or 2017? Answer20172018

c. Is the change in productivity a positive or negative development? AnswerPositiveNegative

d. Compute the companys ROA for 2018 and for 2017.

Note: Round answers to one decimal places (example: 10.4%).

ROA2018Answer2017Answer

e. From the information provided, which of the following best explains the change in ROA during 2018?

Answer1. The companys profitability weakened considerably.2. The companys profitability weakened considerably and its productivity fell.3. The company had markedly more assets in 2018.4. The company had a marked drop in revenue in 2018.