Question

Baker Oats had an asset turnover of 1.6 times per year.

b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?

Short answer

The return on the total assets of the company is 11.2%. It is the same in both the year.

Step-by-step solution

Total assets

The company’s total assets mean the aggregate of current assets and the company’s non-current assets. It can also be termed as the total resources of the company.

Return on total assets of the company

$$\begin{gathered} Returnontotalassets=Profitmargin\times Assetturnoverratio \\ =8\%\times 1.4 \\ =11.2\% \end{gathered}$$

The rate of return on the total assets of the company before the changes is 11.2%. Hence, there is no effect of changes on the return on the company's total assets.