Table of contents

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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

Return on investment (ROI), specifically Return on Assets (ROA), can be decomposed into which of the following two measures?

Earnings per share and price-to-earnings ratio

Net profit margin and asset turnover

Current ratio and debt-to-equity ratio

Gross profit margin and inventory turnover

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Understand the concept of Return on Assets (ROA): ROA measures how efficiently a company uses its assets to generate profit. It is calculated as Net Income divided by Total Assets.

Learn about the decomposition of ROA: ROA can be broken down into two components—Net Profit Margin and Asset Turnover. This decomposition helps analyze profitability and efficiency separately.

Define Net Profit Margin: Net Profit Margin is calculated as Net Income divided by Revenue. It indicates how much profit a company generates for every dollar of revenue.

Define Asset Turnover: Asset Turnover is calculated as Revenue divided by Total Assets. It measures how efficiently a company uses its assets to generate revenue.

Combine the two measures: ROA = Net Profit Margin × Asset Turnover. This formula shows how profitability and efficiency together contribute to the overall return on assets.