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Worked-example setupScope and assumptions
- Both entities use the same Year 5 period, whole-USD scale, net-sales definition, and aggregate reporting basis.
- Beginning-ending average total assets are representative enough for this bounded exercise.
- The packet does not identify price, mix, cost, capacity, asset-age, or utilization causes.
- Period
- Year 5 ended December 31
- Units
- Whole USD; margin and ROA displayed as percentages; turnover displayed in times
- Rounding
- Full precision internally; percentages to two decimal places and turnover to two decimals
The headline tie
Beacon and Harbor both earn $24,000 on $200,000 average total assets. Their ROA is therefore identical:
$24,000 ÷ $200,000 = 12%
A table containing only that result would hide how each company arrived there.
Open ROA into two drivers
| Measure | Beacon | Harbor |
|---|---|---|
| Net profit margin | $24,000 ÷ $240,000 = 10% | $24,000 ÷ $300,000 = 8% |
| Total asset turnover | $240,000 ÷ $200,000 = 1.20× | $300,000 ÷ $200,000 = 1.50× |
| Recomputed ROA | 10% × 1.20 = 12% | 8% × 1.50 = 12% |
Beacon retains more net income per sales dollar. Harbor generates more sales per average asset dollar. The effects offset in ROA.
Do not promote attribution into cause
The decomposition supports this sentence: Harbor's higher turnover offsets its lower margin under the aligned Year 5 facts. It does not support: Harbor has better capacity management, Beacon has more pricing power, or either pattern is sustainable.
To investigate cause, request sales volume and price/mix detail, cost structure, asset composition and age, capacity and utilization, working-capital rollforwards, acquisitions and disposals, and several comparable periods.
Reconciliation and reasonableness
The independent direct ROA and decomposed ROA agree for each entity. That zero difference confirms consistent inputs and formulas. It does not validate the stipulated amounts or the representativeness of the simple averages outside the exercise.
Interpretation
An accounting learner should retain the source statements, average calculation, and identity tie. A finance learner should use the two drivers to frame different operating questions. Neither should rank the companies from the 12% tie or from one component alone.
Common wrong paths
- Average the two companies' assets together: each numerator must remain attached to its own entity denominator.
- Call turnover profit: turnover describes sales intensity, not income.
- Choose the higher component as the winner: margin and turnover can reflect different business models and tradeoffs.
Verified calculation · performance return analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- entities
- 2 fields
Inspect data
{
"beacon": {
"defined_debt_at_end": null,
"ending": {
"total_assets": 220000,
"total_equity": 110000,
"total_liabilities": 110000
},
"net_income": 24000,
"net_sales": 240000,
"opening": {
"total_assets": 180000,
"total_equity": 90000,
"total_liabilities": 90000
},
"reported_operating_cash_flow": 30000
},
"harbor": {
"defined_debt_at_end": null,
"ending": {
"total_assets": 210000,
"total_equity": 85000,
"total_liabilities": 125000
},
"net_income": 24000,
"net_sales": 300000,
"opening": {
"total_assets": 190000,
"total_equity": 75000,
"total_liabilities": 115000
},
"reported_operating_cash_flow": 18000
}
}Recomputed result
| Measure | Value |
|---|---|
| beacon dupont return on assets | 0.12 |
| beacon net profit margin | 0.1 |
| beacon return on assets | 0.12 |
| beacon roa identity difference | 0 |
| beacon total asset turnover | 1.2 |
| harbor dupont return on assets | 0.12 |
| harbor net profit margin | 0.08 |
| harbor return on assets | 0.12 |
| harbor roa identity difference | 0 |
| harbor total asset turnover | 1.5 |