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:
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:
Return on Equity:
Return on Equity is the rate of return earned by the stockholders on their investment in the company. It is calculated with the help of following formula:
The Average stock holder's equity calculated with the help of following formula:
To Indicate:
The Difference between the Return on Total assets and Return on Equity and the higher value.
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Survey of Accounting (Accounting I)
- What is the equation to calculate the accounting rate of return?arrow_forwardWhich of the following may take the form of dividend income and/or capital appreciation? a. bond investments b.gain from an investment c.equity investments d.expected rate of returnarrow_forwardDefine the term Return on Common Equity? How does it measure profitability?arrow_forward
- Which are more critical to the dividend decision, earnings or cash flow? Explain.arrow_forwardWhich is a component of stockholder's equity? a. Sinking funds b. Deferred charges c. Accumulated other comprehensive income d. Realized capitalarrow_forward4. There is a difference in return on Total Assets and the return on Total Equity. a. What is the difference between the two? b. Which ratio of the two is normally higher?arrow_forward
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