Interpret Liquidity, Solvency, And Profitability Measures Practice Test

A public specialty chemicals company reports that net income fell year over year and wants to benchmark asset profitability. Selected year-end data (in $ millions): Net income 54; Average total assets 900. ROA is $54/900 = 6.0%$; industry benchmark ROA is 6.5%. What insight does the ROA provide regarding the company's profitability?

A public logistics company reports declining net income and wants to understand whether assets are being used effectively. Selected year-end data (in $ millions): Net income 22; Average total assets 550. ROA is $22/550 = 4.0%$; industry benchmark is 6.0%. What insight does the ROA provide regarding the company's profitability?