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 ratio measures the overall return on a firm's assets, taking into account financial leverage and taxes?

Gross Profit Margin

Current Ratio

Return on Assets (ROA)

Debt-to-Equity Ratio

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Verified step by step guidance

Understand the concept of Return on Assets (ROA): ROA measures how efficiently a company uses its assets to generate profit, taking into account financial leverage and taxes. It is a key indicator of overall profitability.

Recall the formula for ROA: ROA = (Net Income) / (Average Total Assets). This formula shows the percentage of profit generated for every dollar of assets.

Identify the components of the formula: Net Income is the profit after taxes and interest, and Average Total Assets is the average value of all assets owned by the company during the period.

Analyze why ROA is relevant: ROA incorporates financial leverage (use of debt) and taxes, making it a comprehensive measure of a firm's ability to generate returns from its assets.

Compare ROA to other ratios: Unlike Gross Profit Margin, Current Ratio, or Debt-to-Equity Ratio, ROA specifically focuses on the efficiency of asset utilization and overall profitability, making it the correct answer in this context.