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 'cash flow on total assets' is computed?

Operating Cash Flow divided by Average Total Assets

Net Income divided by Total Assets

Operating Cash Flow divided by Total Liabilities

Net Sales divided by Average Total Assets

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Verified step by step guidance

Understand the concept of 'cash flow on total assets': This ratio measures how efficiently a company generates cash flow from its total assets. It is a key indicator of financial performance and operational efficiency.

Identify the correct formula for 'cash flow on total assets': The formula is Operating Cash Flow divided by Average Total Assets. This ratio focuses on cash flow rather than net income or sales, making it a more direct measure of liquidity and operational efficiency.

Clarify the components of the formula: Operating Cash Flow is the cash generated from a company's core business operations, found in the cash flow statement. Average Total Assets is calculated by averaging the total assets at the beginning and end of the period, which can be found on the balance sheet.

Compare the incorrect options: Net Income divided by Total Assets measures profitability, not cash flow efficiency. Operating Cash Flow divided by Total Liabilities focuses on debt coverage, not asset efficiency. Net Sales divided by Average Total Assets measures asset turnover, not cash flow generation.

Conclude that the correct computation for 'cash flow on total assets' is Operating Cash Flow divided by Average Total Assets, as it directly relates to the efficiency of generating cash flow from the company's assets.