If net income is $80 and total assets are $1,000, what is return on assets (ROA)?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

If net income is $80 and total assets are $1,000, what is return on assets (ROA)?

Explanation:
Return on assets (ROA) measures how efficiently a company uses its assets to generate profit. It’s calculated as net income divided by total assets, expressed as a percentage. Here, ROA = 80 ÷ 1000 = 0.08, which is 8%. So, for every dollar of assets, about 8 cents of net income were earned in the period. This reflects asset efficiency; higher ROA means more profit per unit of asset. The other options would imply profit levels inconsistent with the given numbers (e.g., far less than 8% or far more), so 8% is the correct interpretation.

Return on assets (ROA) measures how efficiently a company uses its assets to generate profit. It’s calculated as net income divided by total assets, expressed as a percentage. Here, ROA = 80 ÷ 1000 = 0.08, which is 8%. So, for every dollar of assets, about 8 cents of net income were earned in the period. This reflects asset efficiency; higher ROA means more profit per unit of asset. The other options would imply profit levels inconsistent with the given numbers (e.g., far less than 8% or far more), so 8% is the correct interpretation.

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