Return on Assets

Return on assets is a business ratio that takes earnings from a period of time and divides those earnings by the beginning balance of the assets used to generate those earnings. The result is a percentage; the higher the percentage the better the performance of the management team. This formula has several flaws including unused and underutilized asset issues.

Return on Assets

Return on Assets

One of the performance ratios used in business identifies the overall ability of management to efficiently utilize resources to generate a profit. Corporate resources include human knowledge/skills and the balance sheet assets of the business. The labor component is unquantifiable in terms of dollars, but assets with a dollar value associated with them are reflected on the balance sheet. The return on assets measures management’s ability to earn a profit  on these balance sheet assets.

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