Question

Omni Technology Holding Company has the following three affiliates:

	Software	Personal Computers	Foreign Operations
Sales	\(40,200,000	\)60,080,000	$100,680,000
Net Income (after tax)	2,086,000	2,880,000	8,510,000
Assets	5,820,000	25,790,000	60,630,000
Stockholder’s equity	4,090,000	10,170,000	50,950,000

b. Which affiliate has the lowest return on assets?

Short answer

The return on assets of Personal computers (i.e. 11.17%) is the lowest.

Step-by-step solution

Return on assets of Software

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Assets}}\\ & =& \frac{\$2,086,000}{\$5,820,000}\\ & =& 35.84\%\end{array}$

Return on assets of Personal computers

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Assets}}\\ & =& \frac{\$2,880,000}{\$25,790,000}\\ & =& 11.17\%\end{array}$

Return on assets of Foreign operations

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Assets}}\\ & =& \frac{\$8,510,000}{\$60,630,000}\\ & =& 14.04\%\end{array}$