Calculating Return On Assets

Many large companies will have certain assets that prove important and valuable to them. A return on these assets will show how profitable they are. When the company invests they need to have an idea of the return their assets have in order to know how much profit they are able to keep. If it is too low than they have to find a better way to spend their money.

In order to calculate the assets you have to use a precise equation. This is the net income divided by the total assets. Both of these amounts can be found in a company’s annual report.

For example; if your companies net income was $14.0 billion and the total assets is $40.2 billion than the answer would be 0.351. You would move the decimal point over two times to the right and will have the percentage of your return. In this scenario it would be 35%.

Now that you know what the percentage is you have to understand what it means. A higher return on assets is good for your business. It is a sign that you company is making good money on small investments. A low number would imply that you are investing a great deal of money – but getting little in return. In short you will be wasting important money.

It is important to check the status of your return on assets once or twice a year. When you have printed out your report you should do the math. This will help to keep you up to date and prevent smaller businesses from shutting down because they have spent all their money without making a profit.