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 best describes how Return on Assets (ROA) is calculated?

Net income divided by average total assets

Total equity divided by net income

Net income divided by total liabilities

Total assets divided by net income

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Verified step by step guidance

Step 1: Understand the concept of Return on Assets (ROA). ROA is a financial ratio that measures how efficiently a company uses its assets to generate profit. It is expressed as a percentage and is calculated using net income and average total assets.

Step 2: Identify the formula for ROA. The formula is: ROA = Net Income / Average Total Assets. This formula highlights the relationship between the profit generated (net income) and the resources used (average total assets).

Step 3: Clarify the components of the formula. Net income is the profit after all expenses, taxes, and costs have been deducted. Average total assets are calculated by taking the sum of the beginning and ending total assets for a period and dividing by two.

Step 4: Compare the given options to the formula. The correct option should match the formula for ROA, which is Net Income divided by Average Total Assets. Eliminate options that involve total equity, total liabilities, or total assets divided by net income, as these do not align with the ROA formula.

Step 5: Confirm the correct answer. Based on the formula and the explanation, the correct description of ROA calculation is 'Net income divided by average total assets.'