Let us understand the formula that acts as a basis for the calculation of the return on total assets equation through the discussion below. If the return on total assets ratio is higher, it is considered more favorable to the stakeholders or the investors as it depicts that the firm or the company is more effectively and efficiently managing its assets to earn or produce greater amounts of profit or income.

Then one needs to take average assets in the denominator since the firm keeps running a business, an asset keeps changing in the entire year, and hence taking one total asset will result in the perhaps biased figure.

read more has to be computed for the numerator. It is calculated as the difference between Gross Profit and Operating Expenses of the business. It doesn’t take into consideration non-operating gains or losses suffered by businesses, the impact of financial leverage, and tax factors. Operating income Operating Income Operating Income, also known as EBIT or Recurring Profit, is an important yardstick of profit measurement and reflects the operating performance of the business. Since all assets can be funded either by debt or equity, the ratio must be calculated by adding back interest expense in the formula above. In other words, ROTA depicts how efficiently the firm or the company or the organization can convert the amount or the money used to purchase those assets into operating profits or operating income. read more formula will measure how effectively the firm or the organization can earn a return on its investment made in assets. The arithmetic average of total assets a company holds analyses how much returns a company is producing on the total investment made. The return on assets ratio Return On Assets Ratio Return on assets (ROA) is the ratio between net income, representing the amount of financial and operational income a company has, and total average assets.

Non current assets turnover formula