Holiday Travel Store is a retailer that sells merchandise at a family campground. The company’s most recent income statement and balance sheet are presented below:
Holiday Travel Store
Income Statement
For the Year Ended December 31, 2004
Sales revenue .............. $75,000
Cost of goods sold ............ (43,000)
Wages expense ............... (15,000)
Supplies expense ............ (3,500)
Utilities expense ............. (2,000)
Rent expense .................. (8,000)
Net income .................... $ 3,500
Holiday Travel Store
Balance Sheet
December 31, 2004
Assets
Cash ............................................ $ 900
Merchandise inventory ................ 7,000
Equipment ................................... 20,000
Total assets .................................. $27,900
Liabilities and Owners’ Equity
Notes payable .............................. $15,500
Contributed capital ..................... 10,000
Retained earnings ....................... 2,400
Total liabilities and owners’ equity ........ $27,900

Required
A. Calculate Holiday Travel Store’s return on assets.
B. Explain what the ratio means.
C. What kinds of changes might the owners make if the return on assets is not acceptable?