Question

Computing rate of return on total assets

Montane Exploration Company reported these figures for 2018 and 2017:

Income statement: Partial	2018	2017
Interest expenses	\(16,700,000	\)16,500,000
Net income	16,900,000	20,200,000
Balance sheet: Partial	Dec 31, 2018	Dec 31, 2017
Total assets	\(316,000,000	\)420,000,000

Compute the rate of return on total assets for 2018. (Round to two decimals.)

Short answer

The rate of return on total assets is9.13%.

Step-by-step solution

Definition of Total Assets

Total assets can be defined as the total amount of resources the business entity possesses for operating a business. It includes resources such as machinery, plant and building.

Calculation of Rate of Return on Total Assets

$$\begin{gathered} \text{Rateofreturnontotalassets}=\frac{\text{Netincome+Interestexpenses}}{{\displaystyle \frac{\text{Beginningassets+Endingassets}}{2}}}\times 100 \\ =\frac{\$16,900,000+\$16,700,000}{{\displaystyle \frac{\$316,000,000+\$420,000,000}{2}}}\times 100 \\ =\frac{\$33,600,000}{\$368,000,000}\times 100 \\ =9.13\% \end{gathered}$$