CMA Study Group

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Because we are measuring how efficient a company is using its Total Assets to generate income vs. finding out common shareholder value. Earnings Per Share subtracts out Preferred Dividends

------------------------------
Daniel Dural
Accountant
United States
------------------------------

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

So for ROE we are supposed to subtract preferred dividend but not for ROA right?

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Original Message:
Sent: 01-24-2020 01:59 PM
From: Daniel Dural
Subject: Ratio problem

Because we are measuring how efficient a company is using its Total Assets to generate income vs. finding out common shareholder value. Earnings Per Share subtracts out Preferred Dividends

------------------------------
Daniel Dural
Accountant
United States

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Hi Daniel,

When they've given return to total assets (which is company's overall efficient use of funds including preference shares), why should we single out pref dividend?

If they wanted to refine and know how CSH's funds are performing, they could have just asked for ROE.

------------------------------
Amith R
Student
Palakkad
India
------------------------------

Original Message:
Sent: 01-24-2020 11:52 PM
From: Riya Samuel
Subject: Ratio problem

So for ROE we are supposed to subtract preferred dividend but not for ROA right?

------------------------------
Riya Samuel
Student
MUMBAI
India

Original Message:
Sent: 01-24-2020 01:59 PM
From: Daniel Dural
Subject: Ratio problem

Because we are measuring how efficient a company is using its Total Assets to generate income vs. finding out common shareholder value. Earnings Per Share subtracts out Preferred Dividends

------------------------------
Daniel Dural
Accountant
United States

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Hi, Riya.
It's not so simple as your question because ROA has various methods of calculation.

It's important to read and understand the question because part of what equation to use is in the question itself.
"What is MON Corporation's return on total assets ratio?" is asking for ROA

Simplest ROA calculation is ROA = Net Income / Average Total Assets
Net Profit Margin % = Net Income / Sales (same as Revenue for these questions)

Net Profit Margin = 5% given = Net Income / $13,050,000.
If you solve for Net Income = 5% x $13,050,000 = $652,500

Now plug in this NI into the ROA = Net Income / Avg. Ttl Assets which is $652,500 / $2,000,000 = 32.62%

*Note that "average" has to be used to calculate average of 2 years of 2 periods are given, but in this question just one number of assets is given.

I hope this helps and it's important to understand multiple ROA calculations such as this one, and one over 2 periods, and DuPont ROA.
Good luck!

-------
MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

------------------------------
Esther Park
Controller
Los Angeles CA
United States
------------------------------

Original Message:
Sent: 01-24-2020 11:52 PM
From: Riya Samuel
Subject: Ratio problem

So for ROE we are supposed to subtract preferred dividend but not for ROA right?

------------------------------
Riya Samuel
Student
MUMBAI
India

Original Message:
Sent: 01-24-2020 01:59 PM
From: Daniel Dural
Subject: Ratio problem

Because we are measuring how efficient a company is using its Total Assets to generate income vs. finding out common shareholder value. Earnings Per Share subtracts out Preferred Dividends

------------------------------
Daniel Dural
Accountant
United States

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

ROE which you are confusing with ROA here has various methods as well.

Assets = Liabilities + Equity

ROA solves for this Asset portion and ROE solves for this Equity portion (very different)

Assets do not deal with dividends Equity does.  So you preferred dividends have no associations with ROA calculation on this example.

ROE = Net Income / Average Equity
and also ROE = Net Income - Preferred Stock Dividends / Average Shareholders' Equity
Basic EPS = Net Income - Preferred Stock Dividends/ Average Number of Common Shares


Good luck to you!!

------------------------------
Park
Controller
Los Angeles CA
United States
------------------------------

Original Message:
Sent: 01-24-2020 11:52 PM
From: Riya Samuel
Subject: Ratio problem

So for ROE we are supposed to subtract preferred dividend but not for ROA right?

------------------------------
Riya Samuel
Student
MUMBAI
India

Original Message:
Sent: 01-24-2020 01:59 PM
From: Daniel Dural
Subject: Ratio problem

Because we are measuring how efficient a company is using its Total Assets to generate income vs. finding out common shareholder value. Earnings Per Share subtracts out Preferred Dividends

------------------------------
Daniel Dural
Accountant
United States

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

I believe this is a typo. 0.31 is ROE and not ROA.


------------------------------
Amith R
Student
Palakkad
India
------------------------------

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Original Message------

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------

Hello Riya,

I totally agree with other member's explanation and would like to add my (2) comments:
1- Most of MCQ data figures include at least (1) misleading information (Linked to wrong answer choice) just to distract you and test your self confidence.
2- ROA is a profitability ratio calculated very directly as: NP / Av. Assets. ROA has nothing to do with dividends (Cash flow element included just for distraction)

Always remember please: Not all information provided in questions are connected to calculation & answer.

Regards

------------------------------
Samer Ahmad, FMVA, SCA
Kuwait
------------------------------

Original Message:
Sent: 01-24-2020 09:25 AM
From: Riya Samuel
Subject: Ratio problem

MON Corporation has total assets of $2,000,000. Its net profit margin is 5% with revenues of $13,050,000, and its preferred dividends are $25,000. What is MON Corporation's return on total assets ratio?

	0.15.
	0.33.
	0.31.
	0.34.

The answer is 0.33 and not 0.31, can anybody tell me why we arent subtracting 25000 dividend from net profit? 

------------------------------
Riya Samuel
Student
MUMBAI
India
------------------------------