A fire has destroyed a large percentage of the financial records of the Excandes
ID: 2618494 • Letter: A
Question
A fire has destroyed a large percentage of the financial records of the Excandesco Company. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 16.7 percent. Sales were $1,795,000, the total debt ratio was .33, and total debt was $660,000.
What are the total assets? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Total assets $
What is the total equity? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Total equity $
What is the net income? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Net income $
What is the return on assets (ROA)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Return on assets %
Explanation / Answer
Solution:-
a) Total assets = $2,000,000
b)Total Equity = $1,340,000
c) Net income = $223,780
d) ROA = 11.19%
Calculations:-
We know that ROE = Net income / Equity
Hence to find the return on equity, we need the net income and total equity.
We can use the total debt ratio to find the total assets as:
Total debt ratio = Total debt / Total assets
0.33 = $660,000 / Total assets
Total assets = $2,000,000.00
In balance sheet we know that total assets is equal to total liabilities and equity, we find the total equity is:
Total assets = Total debt + Equity
$2,000,000.00= $660,000 + Equity
Equity = $1,340,000.00
We have the return on equity and the equity. We can use the return on equity equation to find net income is:
ROE = Net income / Equity
0.1670 = Net income / $1,340,000.00
Net income = $223,780.00
Now we find the ROA is:
ROA = Net income / Total assets
ROA = $223,780.00/ $2,000,000.00
ROA = 0.11189 or 11.19%
Please feel free to ask if you have any query in the comment section.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.