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Return On Assets Ratio

Return on Assets Ratio Assignment / Homework Help
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

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


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