• Skip to main content
  • Skip to primary sidebar
  • Accounting
  • Banking
  • Business
  • Statistics
  • Economics
  • Finance
  • HR
  • Law
  • Marketing
business-jargons-site-logo

Business Jargons

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)]

Related terms:

  1. Debtors Turnover Ratio
  2. Fixed Assets Turnover Ratio
  3. Total Assets Turnover Ratio
  4. Return on Equity Ratio
  5. Return on Capital Employed

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published.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

Primary Sidebar

Top Searches

  • Communication Process
  • Planning
  • 7 C’s of Communication
  • Management
  • International Marketing
  • Business Strategy
  • Effective Communication
  • Insurance
  • Strategic Management
  • Selection Process

Trending Now

  • Group
  • Business
  • Accounting
  • Budget
  • Entrepreneurship
  • Journal
  • Leadership
  • Motivation
  • Communication
  • Stress

New Business Terms

  • Corporate Governance
  • Logistics Management
  • Dividend
  • Quorum
  • Corporate Veil
  • Trade Union
  • Warehouse
  • Mistake
  • Ratification
  • Void Agreement

Categories

  • Accounting
  • Banking
  • Business
  • Business Law
  • Business Statistics
  • Economics
  • Finance
  • HR
  • Marketing

Copyright © 2025 · Business Jargons · Contact Us · About Us · Privacy