- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 24. Financial Analysis Techniques
- Subject 4. Ratios Used in Equity Analysis, Credit Analysis, and Segment Analysis
CFA Practice Question
ABC Co. has the following segment reporting information for 2015.
Gidgets have a return on assets of ______.
A. 6.0%
B. 10.2%
C. 104.6%
User Contributed Comments 8
| User | Comment |
|---|---|
| PedroEdmundo | ROA=NI/ASSET |
| Xocrevilo | Is net income provided in this question?! |
| Kuki | Net income would be your operating profit. ROA = Op Profit / Identifiable Asset = 0.9 / 15.1 = 5.96% approx 6% |
| brandsat | Operating profit is before taxes, NI would be lower, so only logical answer is 5.7 %. Why not ?? |
| Smiley225 | Good logic brandsat, BUT difficult to assume what tax rate to apply as it is not given. |
| Lamkerst | ROA=EBIT/Assets, not NI/Assets. Assets (donominator) belong to all security holders, so numerator should also incorporate returns for all the security holders, not only equity holders. Otherwise, it is inconsistent. |
| gill15 | Return on Assets can be calculated many ways...not just one...here because NI is not given you use operating ROA = OI/Avg Assets. |
| Oksanata | the key word here is "segment" . Segment ROA = Segment profit(loss)/segment asset. Such ROA measures the OPERATING income generated per the level of segment assets (investment). |