Return on Assets

Overview of Return on Assets
The return on assets is an important part of the return on investment. The return on assets is also expressed as a percentage. It is primarily used as a sort of measurement of the profitableness of a particular business organization. It is extremely important in the modern financial world for a number of reasons.

Calculating the Return on Assets
The return on assets can be obtained by dividing the net income of a particular company by the total assets possessed by the same company.

Description of Return on Assets
The return on assets basically provides information about the capability of a particular company to maximize its assets from a financial point of view.
It also provides some indication of the amount of capital the companies use for various purposes.

The figures that are provided by the return on assets are different for separate industries. However, it has been seen that companies, which need a lot of money to start with, always have lesser amount of returns on assets.

Uses of Return on Assets
The return on assets can be used in order to show the profitability of a company before it is leveraged. The figure can also be used to measure the particular company in respect to other companies. The return on assets is used widely for the purpose of financial analysis where the Du Pont Identity is put to use.

While computing the return on assets it is important that the carrying value of the assets are similar to their value in the market. It is used extensively to assess the performance of financial institutions like the banks. The return on assets can be used in order to look at the financial performance of banks as carrying values of the assets owned by them are more or less like the genuine market values of these assets.

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Last Updated on : 27th June 2013

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