Question 2.7: Assess how Global’s ability to use its assets effectively ha...

Fundamentals of Corporate Finance

Assess how Global’s ability to use its assets effectively has changed in the last year by computing the change in its return on assets.

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Plan and Organize

In order to compute ROA, we need net income, interest expense, and total assets.

	2015	2016
Net Income	1.9	2
Interest Expense	4.6	7.7
Total Assets	128.9	170.1

Execute

In 2016, Global’s ROA was (2.0 + 7.7)/170.1 = 5.7%, compared to an ROA in 2015 of (1.9 + 4.6)/128.9 = 5.0%.

Evaluate

The improvement in Global’s ROA from 2015 to 2016 suggests that Global was able to use its assets more effectively and increase its return over this period.

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