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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Financial leverage

Costco Wholesale Corporation (COST) and Wel-Mart Stroes Inc. (WMT)reported the following data (in milllions) for a recent year:

1. Compute the return on total assets. Round to one decimal place.

To determine

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  Return on assets = Net incomeAverage Total Assets 

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  Average total Assets = (Beginning total assets + Ending total assets)2 

To Calculate:

The return on total assets

Explanation

The return on total assets is calculated as follows:

    $ in MillionsCostcoWal-Mart
    Operating Income (A) $ 2,377

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