Keys industries has assets of $2,100, sales of $2,960, operating costs of $2,675, and $250 of total current liabilities consisting of $200 of accruals and $50 of notes payable. Its long-term debt is $850, its common equity is $1,000, its interest charges are $125, and its tax rate is 40%. What is keys' return on total assets, roa?

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Business

Johanna Perry

11 September, 17:03

Keys industries has assets of $2,100, sales of $2,960, operating costs of $2,675, and $250 of total current liabilities consisting of $200 of accruals and $50 of notes payable. Its long-term debt is $850, its common equity is $1,000, its interest charges are $125, and its tax rate is 40%. What is keys' return on total assets, roa?

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Dante Mays · Answer 1

Calculation of Return on Total Assets:

Return on Total assets can be calculated using the following formula:

Return on Total Assets = Net Income / Total Assets

We can calculate Net income as follows:

Sales $2960

Less: Operating Costs $2675

Less: Interest charges $125

Income before tax = 160

Less: Tax (160*40%) = 64

Net Income = $96

Hence, Return on Total Assets = 96/2100 = 0.0457 = 4.57%