Return on Assets
Return on assets is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. Net income is derived from the income statement of the company and is the profit after taxes. The assets are read from the balance sheet and include cash and cash-equivalent items such as receivables, inventories, land, capital equipment as depreciated, and the value of intellectual property such as patents.
A measure of how effectively the business has used its assets to generate profits. It is a performance measure which is independent of the business’s capital structure. The higher the ratio the greater the return on assets.
Greater than 10%
Return on Assets = Annualised Net Profit / Total Assets
Return on assets measures how effectively a company is utilising its assets to generate a profit. The objective of acquiring assets is to put them to the most productive use – meaning you generate the most income from them.
You can keep asset costs down by monitoring your asset expenses monthly. For example, you can reduce equipment costs by renting or leasing equipment. You must seek ways to increase revenues without increasing asset costs.
Whenever you cut expenses, you increase the revenues you get to keep. This creates a higher return for you.
It goes without saying you need to get a return on your assets. But it’s not always that easy when there are so many influences. However, focusing on profit and carefully managing your assets are key actions to help you not just survive but thrive.
I encourage you to create a report or a dashboard that gives you all your figures whenever you need them. If you don’t have the time or resources to make that happen then sign up for Blue Bean today and you’ll see your metrics within a few minutes.
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