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My Topic Is: Return On Assets Ratio

The document discusses the return on assets ratio, which is a financial ratio that measures how profitable a company is relative to its total assets. It defines return on assets as operating income divided by total assets and discusses how the ratio is calculated using net income and average total assets from the income statement and balance sheet. The ratio is used to measure operating profits relative to assets and judge management efficiency and identify weaknesses.

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Harun Rasul
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24 views

My Topic Is: Return On Assets Ratio

The document discusses the return on assets ratio, which is a financial ratio that measures how profitable a company is relative to its total assets. It defines return on assets as operating income divided by total assets and discusses how the ratio is calculated using net income and average total assets from the income statement and balance sheet. The ratio is used to measure operating profits relative to assets and judge management efficiency and identify weaknesses.

Uploaded by

Harun Rasul
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MY TOPIC IS

RETURN ON ASSETS RATIO


A tool used by individuals to conduct a
quantitative analysis of information in a
company's financial statements. Ratios
are calculated from current year numbers
and are then compared to previous
years, other companies, the industry, or
even the economy to judge the
performance of the company.
RATIO
ANALYSIS
i. Ratios facilitate comparison of:
i. One company over time
ii. One company versus other companies

ii. Ratios are used by:
i. Lenders to determine creditworthiness
ii. Stockholders to estimate future cash flows
and risk
iii. Managers to identify areas of weakness and
strength
Purpose

5 main areas
RETURN ONASSET RATIO
RETURN ON ASSET BELONGS TO
PROFITABILITY AREA
RETURN ON ASSETS
Return on Assets Definition
The return on assets (ROA) percentage is a financial
ratio indicating how profitable a company is relative
to its total assets.

Return on Assets Formula
The return on assets ratio calculation formula is as
following:
Return on Assets = Operating Income / Total Assets

Net income
Net income in the return on assets formula can be
found on a company's income statement. Net
income is the amount earned by a company after
subtracting out the expenses incurred, including
depreciation and taxes.

Average total assets
Average total assets in the return on assets
formula is found on a company's balance sheet.

NET INCOME AND AVERAGE TOTAL
ASSETS
Are You Making a Good Return
on Your Assets?
PROFITABILITY RATIOS
Return on Assets
A measure of operating profits relative to total assets
A company operating income is $100,000 and
total assets are $920,000 so;
ROA answers the question:
"What can you do with the assets that you
have available?" The higher the ROA, the
better the management.
USAGE OF ANALYSIS(return on
assets)
.Help in Judging Efficiency
Helps in Locating Weakness
Helps for Formulating Plans
Help for Comparing Performance
Helps in Control
Helpful for Shareholder's decisions
Helpful for Creditors' decisions
Analysis of return on asset ratio ;

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