myz-vgb.ru A Business Encyclopedia

Return on Assets Ratio

Definition: The Return on Assets Ratio shows how well a company can convert its investment in assets into profits or simply, it is the ratio that measures the ability of a company to convert the money spent on purchasing the assets into net income and profits.

It is also referred to as Return on Investments, i.e. how much profit a firm is generating out of the investments. Ideally, it is better to compare the company’s current ROA with that of the previous years or with the ROA of a similar company, since the industry standards can vary. The formula to calculate this ratio is:

Return on Assets Ratio: Profit after tax/ Average Total Assets

Where, Average total assets = (Assets in the beginning+ Assets at the end of the financial year) / 2

The Higher value of ratio shows that firm is able to earn more with fewer investments and hence is able to utilize its assets more efficiently.

Example: Suppose a firm has a net profit of Rs 50,000 and the total assets as on 1 July 2014 and 30 June 2015 were Rs 2,00,000 and 3,00,000 respectively. Then Return on Assets Ratio will be:

Return on Assets Ratio= 50,000/2,50,000 = 0.2 or 20%
[Average Assets = (200000+300000) /2 = 250000)]

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


npv sensitivity analysisdefinition of superiorsan oligopoly is a market in whichmoratorium period in loandefine liquidatedselective listening definitionhow to draw an indifference curveliquidity ratio definition and formulacheque definedefinition of borrowingsethnocentric perspectivecognitive learning process theoryprimal and dual linear programming problemsinduction and orientation programmesampling distribution meaningjohari window feedbackbarometric forecastcharacteristics of grapevine communicationclassical and neoclassical theory of managementrevitalization definitionlaw of diminshing marginal utilityguerrilla attackelasticity of substitution formulatypes of monopolistic competitionjohnson and johnson distribution channelsmeaning of exit interviewdefine vestibuleguerrilla strategycost push theory of inflationliquidation meaning in accountingguerilla marketing meaningthe delphi methodwhat are isoquantsconsumer's equilibriumeconomic barometer definitionemployees provident fund schemeporters five forceslaw of equi marginal utility graphfrontal attack marketingethnocentric approach definitiongoods with elastic demanddemat chargesdefine elasticity in economicstypes of price elasticity of demand with diagramdefine diminishing marginal utilitystraddled definitionegoism theory definitionsnow balling samplingwhat is disguised employmentmonopolies meaningwhat does retrenchment meancheque clearance proceduretravellers cheques meaningwhat is the meaning of nscwhat does kiosk meanwhat is sbi kiosk bankinghirer and hireesignificance of elasticity of demanddifference between forwards and futuresdeflationary fiscal policy definitiondefine geocentricpromotional mix marketingwhat is delphi technique explain with suitable examplechit fund exampletypes of price elasticity of demand with diagramordinal scale definitionspeculates definitioncash reserve ratioclassical conditioning theory pavlovcredit reserve ratiopoint factor job evaluation systemdifference between implicit cost and explicit costcapital budgeting meaningwhat is the definition of moratoriumhenri fayol management theorygrunig hunt public relations modelsethnocentrism meaning in hindi