Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

Financial Accounting

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

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Multiple Choice

Which of the following ratios can be calculated by dividing profit after taxes by total assets?

Return on Assets (ROA)

Current Ratio

Gross Profit Margin

Debt to Equity Ratio

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Verified step by step guidance

Understand the concept of Return on Assets (ROA): ROA is a financial ratio that measures how efficiently a company uses its total assets to generate profit. It is calculated by dividing profit after taxes (net income) by total assets.

Review the formula for ROA: The formula is \( \text{ROA} = \frac{\text{Net Income}}{\text{Total Assets}} \). This ratio provides insight into the company's ability to generate returns from its asset base.

Compare ROA with the other ratios listed: The Current Ratio measures liquidity and is calculated as \( \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \). Gross Profit Margin measures profitability and is calculated as \( \text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Revenue}} \). Debt to Equity Ratio measures financial leverage and is calculated as \( \text{Debt to Equity Ratio} = \frac{\text{Total Debt}}{\text{Total Equity}} \). None of these involve dividing profit after taxes by total assets.

Identify the correct ratio: Since ROA specifically uses profit after taxes and total assets in its calculation, it is the correct answer among the options provided.

Conclude the reasoning: The Return on Assets (ROA) ratio is the only one that matches the description of dividing profit after taxes by total assets, making it the correct choice.