CMA Part 2 Q&A – How to Calculate ROA (Return on Assets Formula)

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Student Question

“Hi Nathan,

Can you please illustrate further how the ROA [Return on Assets] was calculated in this question?”

– Jason

MCQ – Return on Assets

Anderson Cable wishes to calculate their return on assets (ROA). You know that the return on equity (ROE) is 12% and that the debt ratio is 40%. What is the ROA?

A. 4.8%
B. 12%
C. 7.2% (correct)
D. 20%

Correct answer: (C) 7.2%

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Return on equity (ROA) formula= Net Income/Ave. Equity

Debt Ratio = Total Debt/Total Assets

To calculate the return on assets (ROA), we have to use both formulae:

ROA = ROE x (1 – Debt Ratio)

ROA = 12% x (1-40%)

ROA = 12% x 60%

ROA = 7.20%

How did we arrive at the formula?

First, we have to state the formula of ROA which is:

ROA = Net Income/Total Assets

Second, we have to extract the juice out of the given formula:

Net Income/Total Assets = Net Income/Equity x (1 – Debt Ratio)

Net Income/Total Assets = Net Income/Equity x (100% – Total Debt/Total Assets) -> In this case, the equity ratio is the remaining portion of the 100%.
*Remember the accounting equation: Assets = Liabilities + Equity

Net Income/Total Assets = Net Income/Equity x Equity/Total Assets -> Therefore the equation can be restated as:
Assets (100%) = Liabilities (40%) + Equity (60%)

Net Income/Total Assets = Net Income/Equity x Equity/Assets

Net Income/Total Assets = Net Income/Total Assets

My Complete Course students pass the CMA exam at double the global CMA pass rate of 35%. This is possible due to the personalized 1-on-1 coaching support they receive throughout their exam prep program.

Below you’ll find an example of a mini-lesson that helped my student, Jason, understand how to calculate the return on assets (ROA).

Jason didn’t have any study materials before finding CMA Exam Academy so he opted for my Complete Course to gain access to the ultimate toolkit for the CMA exam preparation.

Until our next lesson,


Nathan Liao

Hi, I’m Nathan Liao (aka the CMA Coach)! For the last 10 years, over 82,000 accounting and finance pros came knocking at my door seeking guidance and help. If you’re also aiming to conquer the CMA exam on your very first try—without wasting away time or money—you’ve found your ultimate guide. Dive in deeper to discover more about me and the dedicated team that powers CMA Exam Academy. Click here and let’s embark on this journey together!

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