Question

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8 million in the previous year), net income is $40,000, and net cash flows from operating activities are $50,000. How does Tech Track's cash return on assets compare to the industry average of 10%?

Answer 1

Answer:

11.11%, higher than industry's average

Explanation:

The cash return on assets (ROA) ratio is used to compare how the company performs with relation to its direct competitors in the same industry.

the formula to calculate ROA = cash flow from operations ÷ total average assets

ROA = $50,000 / [($400,000 + $500,000) / 2] = $50,000 / $450,000 = 11.11%

Since Tech Track's ROA is 11.11%, it is higher than the industry's average, so that mean that it manages its cash flows more efficiently than their average competitors.