Question

Swiss Group reports net income of \(40,000 for 2017. At the beginning of 2017, Swiss Group had \)200,000 in assets. By the end of 2017, assets had grown to $300,000. What is Swiss Group’s 2017 return on assets? How would you assess its performance if competitors average an 11% return on assets?

Short answer

Answer

The return on assets of the Swiss group is 16% and they are performing better than their competitor.

Step-by-step solution

Computation of return on assets

$$\begin{gathered} \mathit{A}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{A}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathit{s}\mathbf{=}\frac{\mathbf{O}\mathbf{p}\mathbf{e}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}\mathbf{+}\mathbf{C}\mathbf{l}\mathbf{o}\mathbf{s}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}}{\mathbf{2}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{+}\mathbf{300}\mathbf{,}\mathbf{000}}{\mathbf{2}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{250}\mathbf{,}\mathbf{000} \\ \mathit{R}\mathit{e}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathbf{}\mathit{o}\mathit{n}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathit{s}\mathbf{=}\frac{\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{I}\mathbf{n}\mathbf{c}\mathbf{o}\mathbf{m}\mathbf{e}}{\mathbf{A}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{40}\mathbf{,}\mathbf{000}}{\mathbf{250}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{16}\mathbf{\%} \end{gathered}$$

Assessment of performance

The Swiss group has a return on assets of 16% which is much higher than their competitor who has a return on assets of 11%. This means the company is using its assets more efficiently in order to generate net income.