Chester has a ROA of 0.12 (ROA = Net income/Total Assets). That means: Select: 1

Question

Chester has a ROA of 0.12 (ROA = Net income/Total Assets). That means: Select: 1 Chester uses $0.12 of each dollar earned to purchase assets. Every dollar of Chester's assets result in earnings of $0.88. Chester uses $0.88 of each dollar earned to purchase assets. Every dollar of Chester's assets result in earnings of $0.12. Chester has a ROA of 0.12 (ROA = Net income/Total Assets). That means: Select: 1 Chester uses $0.12 of each dollar earned to purchase assets. Every dollar of Chester's assets result in earnings of $0.88. Chester uses $0.88 of each dollar earned to purchase assets. Every dollar of Chester's assets result in earnings of $0.12.

Explanation / Answer

ROA(Return on Assets) is computed by dividing the Net Income by Total Assets. This ratio helps in ascertaining the efficiency of asset usage to generate Earnings. ROA is a profitability Ratio. The higher the ratio, the better it is for the organisation. It is given that Chester has an ROA of 0.12 which means that:

Every dollar of Chester's Assets results in earnings of $0.12(Last option).

Let's see how:

ROA = 0.12

Net Income/Total Assets = 0.12

Net Income = 0.12 * Total Assets

That means Net income is 12% of the Total Assets

If Total Asset is of $1, Net Income shall be $0.12 (12% of $1)

or Every dollar of Chester's Assets results in earnings of $0.12

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