Return on assets as the most important indicator for the industrialist
What is return on assets? Why and who needs this indicator
Return on assets is a special financial indicator, using which you can calculate the return on the use of assets held by an organization. It allows you to determine the ability of the company to create cash, in other words, profit. At the same time, the already existing capital structure or, as the indicator is otherwise called, financial leverage is not taken into account. Also, according to this indicator, it is possible to determine an important moment in the general sense of the word, namely, the quality of work of the management department, since the profitability of assets characterizes the quality of management of the invested funds, as well as the ways of their redistribution. A separate advantage of using this indicator is that it takes into account absolutely all the assets at the company's disposal.At the same time, most of the other indicators take into account only their own funds. This distinction makes this formula more desirable for the industrialist and the manufacturer, but at the same time it loses its appeal to any investor who is only interested in the organization’s own funds.
How to calculate this indicator and make it more accurate
The economic return on assets is calculated using a special formula that consists of two values. To obtain this indicator, it is necessary to divide the net profit - most often the annual value is taken - by the size of all assets or, in other words, the balance of the organization.The result of this action will be the amount of profit that the organization receives for each ruble invested in the assets of the company. In order to improve visibility, you can use the multiplication by one hundred, then the result will take not a numerical, but a percentage ratio. The profitability of assets can be calculated more accurately, for this the value substituted into the place of assets will be the arithmetic average.Otherwise, accuracy may suffer very much. The average value is obtained through the addition of assets at the beginning and end of the year, and then dividing them in half. There is also a way to calculate the value of assets not for the whole year, but only for a certain period. A special formula is used for this, where revenue is multiplied by the result of dividing 365 days by the number of days in the period of interest to the analyst, which, in turn, is divided into assets by the beginning and end of the period, divided by two.
How this indicator changes depending on the field in which the company operates
Return on assets can have completely different values. First of all, it depends on the field in which the organization conducts its activities. For example, for those industries that require large investments of funds, the figure will be lower. But for those areas of activity where services are provided, and there is no need to invest a large amount of capital, the value obtained by the formula will be higher.