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)

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following is true regarding Return on Assets (ROA)?

ROA measures how efficiently a company uses its assets to generate net income.

A higher ROA always indicates higher financial leverage.

ROA is only relevant for service-based companies.

ROA is calculated by dividing total liabilities by total assets.

Previous problemNext problem

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 assets to generate net income. It is a key indicator of profitability and operational efficiency.

Clarify the formula for ROA: ROA is calculated using the formula:

\frac{Net Income}{Total Assets}

. This formula shows the relationship between net income and total assets.

Evaluate the statement 'A higher ROA always indicates higher financial leverage': This is incorrect because ROA measures operational efficiency, not financial leverage. Financial leverage is related to the use of debt in financing, not asset efficiency.

Assess the statement 'ROA is only relevant for service-based companies': This is incorrect because ROA is relevant for all types of companies, including manufacturing, retail, and service-based companies, as it measures overall asset efficiency.

Analyze the statement 'ROA is calculated by dividing total liabilities by total assets': This is incorrect because dividing total liabilities by total assets calculates the debt ratio, not ROA. ROA specifically uses net income and total assets in its formula.