Grady Home Health has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000 and total assets of $22,500,000, what is Grady's return on assets (ROA)

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Business

Adriana Kemp

25 October, 07:52

Grady Home Health has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000 and total assets of $22,500,000, what is Grady's return on assets (ROA)

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Jimena Burch · Answer 1

The ROA is 20%

Explanation:

The Return on Asset is the ratio of a company's net income compared to its asset. It is used to show how profitable the assets a company has is to the company.

mathematically it is represented as;

ROA = (net income) : (total asset)

let us calculate net income first.

net income = 15% on sales of $20,000,000

= 15/100 * 20,000,000

= 0.15 * 20,000,000 = $3,000,000

Asset = Total asset - debt = 22,500,000 - 7,500,000 = $15,000,000

∴ ROA = 3,000,000 : 15,000,000 = 0.2

converting to percentage; 0.2 = 20/100 = 20%