Philips inc has a debt ratio of 55% and ROE= 20%. What is phillips ROA?
To calculate Phillips' Return on Assets (ROA), we need to know its debt ratio and Return on Equity (ROE). ROE measures a company's profitability by showing the return generated on shareholder's equity, while ROA measures the return generated on its total assets.
The formula for ROA is:
ROA = Net Income / Average Total Assets
To find Net Income, we need to know:
Net Income = ROE * Shareholder's Equity
To calculate Shareholder's Equity, we need to know:
Shareholder's Equity = Total Assets - Total Liabilities
Since we have the debt ratio, we can substitute the values and calculate the ROA.
Debt Ratio = Total Debt / Total Assets
Total Liabilities = Debt Ratio * Total Assets
Total Assets = Shareholder's Equity + Total Liabilities
Since we have the ROE as well, we can derive:
Net Income = ROE * (Total Assets - Total Liabilities)
Finally, we can substitute Net Income and Average Total Assets into the ROA formula to find the answer.
Average Total Assets = (Starting Total Assets + Ending Total Assets) / 2
Now let's calculate the ROA for Philips Inc using the given data:
Given:
Debt Ratio = 55%
ROE = 20%
Step 1: Calculate Total Liabilities
Total Liabilities = Debt Ratio * Total Assets
Step 2: Calculate Shareholder's Equity
Shareholder's Equity = Total Assets - Total Liabilities
Step 3: Calculate Net Income
Net Income = ROE * Shareholder's Equity
Step 4: Calculate Average Total Assets
Average Total Assets = (Starting Total Assets + Ending Total Assets) / 2
Step 5: Calculate ROA
ROA = Net Income / Average Total Assets
By following these steps, you can calculate the ROA for Phillips Inc using the given data.