Homework Answers
Retrun on total asset (ROA) = Net Income / Total Average Assets.
Total Average Assets = ($115,000 + $105,000) / 2 = $110,000.
ROA = $3,400 / $110,000 = 3.09%.
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Return on Common Shareholder's Equity (ROE) = Net Income / Average Shareholder's Equity.
Average Shareholder's Equity = ($56,500 + $53,500) / 2 = $55,000.
ROE = $3,400 / $55,000 = 6.18%.
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These rate of return suggests Weakness because the return on equity is 6.18% but return on assets is 3.09% meaning that the company is paying more for its borrowed funds than its earnings.
Note : Please comment down for any further clarifications.
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