A bank estimates that its total revenues will amount to $155 million and its total expenses (including taxes) will equal $107 million this year. Its liabilities total $4,960 million while its equity capital amounts to $52 million. What is the bank’s return on assets? Is this ROA high or low? How could you find out?
Question 6.8: A bank estimates that its total revenues will amount to $155...
The bank’s return on assets would be:
\text { ROA }=\frac{\text { Net Income }}{\text { Total Assets }}=\frac{\$ 155 \text { mill. }-\$ 107 \text { mill. }}{\$ 4,960 \text { mill. }+\$ 52 \text { mill. }}=0.0096 \text { or } 0.96 \text { percent }
The size of this bank’s ROA should be compared with the ROA’s of other banks similar in size and location to determine if this bank’s ROA is high or low.
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