You have the following data for the Fosberg Winery. What is Fosberg's return on assets (ROA)? Return on equity = 15%; Earnings before taxes = $30,000; Total asset turnover = 0.80; Profit margin = 4.5%; Tax rate = 35%.
nm.n.
To calculate Fosberg Winery's return on assets (ROA), you need to use the following formula:
ROA = Profit Margin * Total Asset Turnover
First, let's calculate the profit margin:
Profit Margin = (Earnings Before Taxes * (1 - Tax Rate)) / Net Sales
Given that Earnings Before Taxes = $30,000 and Tax Rate = 35%, we can calculate the net sales using the profit margin formula:
Net Sales = Earnings Before Taxes / (1 - Tax Rate)
Net Sales = $30,000 / (1 - 0.35)
Net Sales = $30,000 / 0.65
Net Sales = $46,153.85
Now, let's calculate the profit margin:
Profit Margin = (Earnings Before Taxes * (1 - Tax Rate)) / Net Sales
Profit Margin = ($30,000 * (1 - 0.35)) / $46,153.85
Profit Margin = ($30,000 * 0.65) / $46,153.85
Profit Margin = $19,500 / $46,153.85
Profit Margin = 0.4218
Next, let's calculate the return on assets (ROA):
ROA = Profit Margin * Total Asset Turnover
Given that the Total Asset Turnover = 0.80, we can calculate the ROA:
ROA = 0.4218 * 0.80
ROA = 0.3374
Therefore, Fosberg Winery's return on assets (ROA) is 0.3374, or 33.74%.