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Return on Assets
The return on assets ratio is a profitability ratio that measures efficient a company is at generating profit (net income) using its assets.
Wize Tip
If the income tax rate is not provided, you can find by dividing income tax expense by earnings before tax.
Interpreting the Ratio
- Measures how many dollars of net income are earned with every $1 of assets.
- A higher ratio means the company is efficient at using its assets to generate net income for the company (profit).
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Example: Return on Assets
Calculate the return on assets using both methods for the year 2020.
Practice: Return on Assets
Compute the return on assets ratio for the year 2020. Do not round your work, round your final answer to 4 decimal places and enter you answer in decimal form.
