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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What are two frequently used ratios measuring return on investment? How are they computed, and what do they mean?

To determine

State the two frequently used ratios measuring return on investment, explain the manner in which they are computed and explain their meaning.

Explanation

Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions or a companies. The two ratios used to measure return on investments are return on assets and return on common equity.

Return on Assets (ROA): This financial ratio evaluates a company’s efficiency in operating the assets to generate net income. So, ROA is a tool used to measure the performance of a company.

Description of return on assets ratio:

Return on assets ratio evaluates the manner in which the company uses its resources in a most efficient and effective way.

Formula to calculate the return on assets:

Returnonassets=[Netincome (including income attributable to non-controlling interests)+(Interest

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