This measures the amount of interest and non-interest income generated per dollar of total assets.
Question
This measures the amount of interest and non-interest income generated per dollar of total assets.
Solution
The statement you provided seems to be referring to the concept of Return on Assets (ROA). ROA is a profitability ratio that measures the net income produced by total assets during a period. Here's how to calculate it:
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Determine the Net Income: This is usually found on the company's income statement. It's the amount of income remaining after all expenses, including interest and taxes, have been paid.
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Determine the Total Assets: This is found on the company's balance sheet. Total assets include everything the company owns that has value, including cash, accounts receivable, property, equipment, and inventory.
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Divide Net Income by Total Assets: This will give you the ROA. The result is usually expressed as a percentage. The higher the percentage, the more effectively the company is using its assets to generate income.
For example, if a company has a net income of 5,000,000, its ROA would be 20% (5,000,000 = 0.20, or 20%).
Remember, a higher ROA indicates a company is more efficient at using its assets to generate income.
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