Return on Assets Calculation for Company XYZ

What is the return on assets for Company XYZ?

A. 6.08 percent

B. 6.92 percent

C. 6.39 percent

D. 4.42 percent

E. 6.70 percent

Answer:

The company's ROA is $13,393 / $225,000 = 6.39%. So the correct answer is choice C.

The return on assets (ROA) is a crucial financial ratio that measures a company's profitability relative to its total assets. It indicates how efficiently a company is utilizing its assets to generate profit.

In the case of Company XYZ, with sales of $211,000, a profit margin of 6.3 percent, and a capital intensity ratio of 0.94, we can calculate the ROA as follows:

Net Income = Sales * Profit Margin = $211,000 * 6.3% = $13,393

Total Assets = Sales / Capital Intensity Ratio = $211,000 / 0.94 = $225,000

Therefore, the return on assets for Company XYZ is $13,393 / $225,000 = 6.39 percent. This means that for every dollar of assets the company owns, it generates a profit of 6.39 cents.

Understanding and monitoring the return on assets is essential for investors and stakeholders to assess the company's efficiency in using its assets to generate profits and create value for shareholders.