Question

Suppose during 2022 that Federal Express reported the following information (in millions): net sales of $34,550 and net income of $91. Its balance sheet also showed total assets at the beginning of the year of $24,610 and total assets at the end of the year of $23,300. Calculate the asset turnover and return on assets

Answer 1

Answer:

Asset turnover: 1.4423 (144,23%)

ROA: 0.0038 (0.38%)

Explanation:

Asset turnover helps investors understand how effectively companies are using their assets to generate sales. Asset turnover is calculated by using following formula:

Asset Turnover =  Total Sales or Revenue/ Average Total Assets

(Beginning Assets + Ending Assets

)/2

where:

Total Sales=Annual sales total

Average Total Assets = (Beginning Assets + Ending Assets

)/2 = (Assets at the beginning of year  +Assets at end of year

)/2

Return on assets (ROA) helps an investor see how much after-tax profit a company gained for each dollar in assets, is calculated by formula:

ROA = Net Income/  Average Total Assets

In Federal Express:

Average Total Assets = ($24,610+$23,300)/2= $23,955

Asset turnover = $34,550/$23,955 = 1.4423 (144,23%)

ROA = $91/$23,955 = 0.0038 (0.38%)

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