Return on Assets Ratio Assignment Help, Tutoring
Return on Assets Ratio Homework Help, Return on Assets Ratio Tutor Help:
Return on Assets:
This profitability ratio is based on the assets/investments of the firm and measures
the relationship between the profits of the firm and assets employed to earn that
profit. This ratio highlights or depicts the efficiency of the management to employ
the assets of the firm to generate profits. This ratio is also referred to as Return
on Investment. It is expressed as a percentage. It is computed as:
Net Income after taxes
Average Total Assets
Average Total Assets
Higher the ratio, the better it is for the firm and its investors. It indicates
that the firm is earning more money on a smaller investment base. This ratio also
highlights the skills of management in efficiently utilizing the assets of the company
to earn profits.
Example:
A company has the following profit and asset numbers taken from its balance sheet.
| Year 2009 | Year 2008 | ||
| Turnover | $653,234 | $587,675 | |
| Current assets | $1,769,879 | $1,567,632 | |
| Fixed assets | $5,756,423 | $4,687,893 |
Return on Asset turnover ratio:
$653,234
$6,890,914
9.48%
Average assets:
(($1,769,879 + $5,756,423) + ($1,567,632 + $4,687,893))/2
=> $6,890,914
$653,234
$6,890,914
9.48%
Average assets:
(($1,769,879 + $5,756,423) + ($1,567,632 + $4,687,893))/2
=> $6,890,914
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