Return on long-term assets formula. Return on net assets

Consider the profitability ratios of the enterprise. In this article, we will look at one of key indicators estimates financial condition enterprises – return on assets.

Return on assets refers to the group of coefficients "Profitability". The group shows the effectiveness of cash management in the enterprise. We will consider the return on assets (ROA) ratio, which shows how much money is accounted for per unit of assets a company has. What are enterprise assets? More in simple words This is his property and his money.

Consider the formula for calculating the return on assets (ROA) with examples and its standard for enterprises. It is advisable to start studying the coefficient from its economic essence.

Return on assets. Indicators and direction of use

Who uses the return on assets ratio?

It is used by financial analysts to diagnose the performance of an enterprise.

How to use the return on assets ratio?

This ratio shows the financial return on the use of the company's assets. The purpose of its use is to increase its value (but taking into account, of course, the liquidity of the enterprise), that is, with the help of its financial analyst can quickly analyze the composition of the assets of the enterprise and evaluate them as a contribution to the generation of total income. If any asset does not contribute to the income of the enterprise, then it is advisable to refuse it (sell, remove it from the balance sheet).

In other words, return on assets is an excellent indicator of the overall profitability and performance of an enterprise.

. Calculation formula according to balance sheet and IFRS

Return on assets is calculated by dividing net income by assets. Calculation formula:

Return on assets ratio = Net profit / Assets = line 2400 / line 1600

Often, for a more accurate assessment of the coefficient, the value of assets is taken not for a specific period, but the arithmetic average of the beginning and end of the reporting period. For example, the value of assets at the beginning of the year and at the end of the year divided by 2.

Where to get the value of assets? She is taken from financial statements in the "Balance" form (line 1600).

In Western literature, the formula for calculating the return on assets (ROA, Return of assets) is as follows:

where:
NI - Net Income ( net profit);
TA - Total Assets (the amount of assets).

An alternative way to calculate the indicator is as follows:

where:
EBI is the net income received by shareholders.

Video lesson: “Evaluation of the profitability of company assets”

Return on assets ratio. Calculation example

Let's move on to practice. Let's calculate the return on assets for the aviation company OAO Sukhoi Design Bureau (manufacturers of aircraft). For this, it is necessary to take data from financial reporting from the official website of the company.

Calculation of return on assets for OJSC OKB Sukhoi

Profit and loss statement of JSC OKB Sukhoi

Balance sheet of JSC OKB Sukhoi

Return on assets 2009 = 611682/55494122 = 0.01 (1%)

Return on assets 2010 = 989304/77772090 = 0.012 (1.2%)

Return on assets 2011 = 5243144/85785222 = 0.06 (6%)

According to the foreign rating agency Standard & Poor's, the average return on assets in Russia in 2010 was 2%. So 1.2% for Sukhoi in 2010 is not so bad compared to the average profitability of the entire Russian industry.

The return on assets of JSC OKB Sukhoi increased from 1% in 2009 to 6% in 2011. This indicates that the efficiency of the enterprise as a whole has increased. This was due to the fact that net profit in 2011 was significantly higher than in previous years.

Return on assets ratio. Standard value

The standard for the return on assets, as well as for all profitability ratios Kra >0. If the value less than zero- This is an occasion to seriously think about the efficiency of the enterprise. This will be caused by the fact that the company operates at a loss.

Summary

Analyzed the return on assets. Hope you don't have any more questions. Summing up, I want to note that ROA is one of the three most important profitability ratios of an enterprise, along with the return on sales ratio and the return on equity ratio. You can read more about the return on sales ratio in the article: ““. This ratio reflects the profitability and profitability of the enterprise. It is usually used by investors to evaluate alternative investment projects.

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profitability is economic indicator, which shows how efficiently resources are used: raw materials, personnel, money and other tangible and intangible assets. You can calculate the profitability of an individual asset, or you can calculate the profitability of the entire company at once.

Profitability is calculated to predict profit, compare a company with competitors, or predict the return on investment. The profitability of an enterprise is also assessed if they are going to sell it: a company that brings more profit and at the same time spends less resources costs more.

How profitability is calculated

There is a profitability ratio - it shows how efficiently resources are used. This ratio is the ratio of profit to the resources that have been invested in order to receive it. The coefficient can be expressed in a specific amount of profit received per unit of invested resource, or maybe as a percentage.

For example, a company produces sour cream. 1 liter of milk costs 5 rubles, and 1 liter of sour cream costs 80 rubles. From 10 liters of milk, 1 liter of sour cream is obtained. From 1 liter of milk, you can make 100 milliliters of sour cream, which will cost 8 rubles. Accordingly, the profit from 1 liter of milk is 3 rubles (8 R − 5 R).

And another company makes ice cream. 1 kilogram of ice cream costs 200 rubles. For its production, 20 liters of milk are needed at the same price - 5 rubles per liter. From 1 liter of milk you get 50 grams of ice cream, which will cost 10 rubles. Profit from 1 liter of milk - 5 rubles (10 R − 5 R).

Profitability of the resource "Milk" in the production of ice cream: 5 / 5 = 1, or 100%.

Conclusion: the return on resources in the production of ice cream is higher than in the production of sour cream - 100% > 60%.

The profitability ratio can also be expressed in terms of the amount of resources spent that were needed to get a fixed amount of profit. For example, to get 1 ruble of profit in the case of sour cream, you need to spend 330 milliliters of milk. And in the case of ice cream - 200 milliliters.

Types of profitability indicators

To evaluate the performance of the company, several indicators of profitability are used. Each of them is calculated as the ratio of net profit to some value:

1. To assets - return on assets (ROA).
2. To revenue - return on sales (ROS).
3. To fixed assets - profitability of fixed assets (ROFA).
4. To the invested money - return on investment (ROI).
5. To equity - return on equity (ROE).

Profitability threshold

The threshold of profitability is the minimum profit that covers costs. For example, investments, if we are talking about investments, or cost, if we are talking about production. When talking about the threshold of profitability, the term "break-even point" is most often used.

Return on assets (ROA)

The ROA indicator is calculated to understand how efficiently the company's assets are used - buildings, equipment, raw materials, money - and what kind of profit they bring in the end. If the return on assets is below zero, then the company is operating at a loss. The higher the ROA, the more efficiently the organization uses its resources.

ROA = P / CA × 100%,

P - profit for the period of work;

TA - the average price of assets that were on the balance sheet at the same time.

Return on sales (ROS)

Return on sales shows the share of net profit in the total revenue of the enterprise. When calculating the ratio, instead of net profit, gross profit or profit before taxes and interest on loans can also be used. Such indicators will be called respectively - the profitability ratio of sales by gross profit and the operating profitability ratio.

ROS = P / V × 100%,

P - profit;

B is revenue.

Return on fixed assets (ROFA)

Main production assets- assets that the organization uses to produce goods or services and which are not consumed, but only wear out. For example, buildings, equipment, Electricity of the net, cars, etc. ROFA shows the return on the use of fixed assets that are involved in the production of a product or service.

ROFA \u003d P / Cs × 100%,

P - net profit of the organization for the required period;

Cs - the cost of fixed assets of the company.

Return on current assets (RCA)

Current assets are resources that are used by the company to produce goods and services, but which, unlike fixed assets, are fully spent. Current assets include, for example, money in the company's accounts, raw materials, finished products in stock, etc. RCA shows the effectiveness of current asset management.

RCA \u003d P / Tso × 100%,

P - net profit for a certain period;

Tso - cost current assets used to produce a good or service during the same time period.

Return on equity (ROE)

ROE shows the return on the money invested in the company. Moreover, investments are only authorized or share capital. To calculate the efficiency of using not only own, but also borrowed funds, use the return on capital employed - ROCE. It makes it clear how much income the company brings. Return on equity is compared not only with similar indicators of other companies, but also with other types of investments. For example, with interest on bank deposits, to understand whether it makes sense to invest in a business.

ROE = P / C × 100%,

P - profit;

K is capital.

Return on investment (ROI)

The return on investment indicator is an analogue of the return on capital, but it is calculated for any type of investment. For example, bank deposits, exchange instruments, etc. ROI shows the return on investment.

ROI = P / Qi × 100%,

P - profit;

Qi is the price of investment.

Profitability of production

The profitability of production is the ratio of net profit to the cost of fixed assets and working capital. In fact, the profitability of production shows the efficiency of the entire company. Diversified enterprises calculate profitability for each type of production separately. You can also calculate the profitability of production separate species products or the profitability of a particular production area, such as a workshop.

Rpr \u003d P / (Cs + Tso) × 100%,

P - profit;

Pr - the cost of fixed assets of the company;

Tso - the cost of current assets, taking into account depreciation and wear.

Project profitability

The profitability of the project, in contrast to the profitability of an already operating production, is an attempt to assess how effective investments in new business. The profitability of a project is the ratio of future profits to all the costs that will be needed to start a business. This indicator is calculated not only by those who start a business, but also by investors - in order to understand whether it makes sense to invest in this project.

As the ratio of the value of the business to the investment in its launch.

Rp \u003d Sat / Qi,

Sat - the total cost of the business;

Qi - the amount of investment.

As a ratio of net income and depreciation expenses to start-up investments.

Rp \u003d (P + A) / Qi,

P - net profit;

A - depreciation;

Qi - costs.

How to increase profitability

Profitability is the ratio of net profit to any other indicator: the value of current assets, fixed assets, capital, investments, etc. To increase profitability, you must either increase the value of the numerator - profit, or reduce the denominator - the value of assets, capital, investments, etc. d.

For example, to increase the profitability of sales, you can improve the quality of products or develop an effective marketing strategy - as a result, demand will increase and, as a result, profits. And you can reduce the cost of production - then the profitability will increase with the same demand.

How to assess how correctly and effectively the company uses its capabilities? How can one evaluate an enterprise in order to sell it or attract investors? For competent analysis, relative and absolute indicators, which allow drawing conclusions not only about the monetary value, but also about the prospects for buying / investing in the project. One of these indicators is the return on assets, the formula for calculating which will be given below. In our article, you will learn about what this term means, when it is used and what it shows.

Introduction

For a proper assessment economic activity it is necessary to combine relative and absolute indicators. The former talk about how profitable and liquid the company is, whether it has prospects and chances to stay on the market during crises. It is by relative indicators that two companies operating in the same areas are compared.

Return on assets shows the performance of your property

Absolute indicators are numerical/monetary values. This includes profit, revenue, product sales and other values. A correct assessment of the enterprise is possible only by comparing two indicators.

What is RA

The term "return on assets" is English language as return on assets and has the abbreviation ROA. Knowing it, you can understand how efficiently the company uses its assets. This is a very important indicator that allows you to conduct a global analysis of the economic activities of your company. That is, to put it simply, return on assets is the efficiency of your assets.

Three types of ROA are currently in use:

1. Classic return on assets (ROA).
2. Profitability of existing current assets.
3. Profitability of existing non-current assets.

Let's take a look at these concepts. Current assets describe the company's existing assets, which are indicated in the balance sheet (section number 1), as well as in lines 1210, 1230 and 1250. This property must be used for the production cycle or one calendar year. These assets affect the cost of the final service or manufactured products of companies. This usually includes:

1. Existing accounts receivable.
2. Value Added Tax.
3. Working capital “frozen” in warehouses and production.
4. Foreign currency and other equivalents.
5. Various short term loans.

The higher the return on assets, the more profit the company brings

Specialists divide OO into three types:

1. Cash (loans, short-term investments, VAT, etc.).
2. Material: raw materials, blanks, stocks.
3. Intangible: receivables and equivalents.

The second, no less important concept, is the non-current assets of the enterprise. This term includes all property that is used for more than a year and is displayed in 1150 and 1170 lines. These assets do not lose their properties over a long period of time (but are subject to depreciation), therefore, they add only a small part to the cost of the final service or product. This term includes:

• key property of the company (office and industrial buildings, transport, equipment, machine tools);
• classic intangible assets (reputation, brand, licenses, existing patents, etc.);
• existing long-term loans and liabilities.

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These assets are also divided into three types, as well as current assets.

How to calculate

In order to find out the profitability ratio of assets, you can use the formula (PR / Asr) * 100%. Also, the formula may look like this: (PE / Asr) * 100%. By taking profit data and calculating the corresponding values, you will find out how much money each ruble invested in the company’s property brings in and whether assets can even make a profit.

A high rate of return on assets is usually observed in trading and innovative enterprises

In order to find how much profit your assets bring, you can use the TR-TC formula. Here, TR stands for Value Revenue and TC stands for Product/Service Cost. To find TR, use the formula P * Q, where Q is the sales volume, and P is the cost of one product.

To find the cost, you need to find data on all the costs of the enterprise for the production cycle or a certain time and add them up. The cost includes rent, public Utilities, salary for workers and management, depreciation, logistics, security, etc. Knowing the cost, you can calculate the net profit: TR-TC-PrR + PrD-N. Here H - denotes taxes, PrR - other expenses, PrD - other income. PrD and PrP are terms that denote income and expenses that are not directly related to the company's activities.

Count by balance

There is a special formula for return on assets on the balance sheet - it is usually used if the data is completely open . The balance sheet indicates the number and value of assets at the beginning and end of the year. You can find out the profitability quite simply - calculate the arithmetic average for each section of the balance sheet from lines 190 and 290. This is how you find out the cost of non-current and current assets. In small companies, the calculation is done on lines 1150 and 1170, as a result, you will find out the average annual cost of I.A.

Then we use the formula ObAsr = ObAnp + ObAkp. Here everything is the same as in the previous formula, and OA denotes the value of current assets. Now we add the two received numbers and get the average annual value of the company's property. This is done according to the formula Asr = ObAsr + VnAsr.

Return on assets is a relative measure that can be used to compare businesses

Based on this, we can conclude: return on assets shows the return on the property of your company. The higher this ratio, the higher the profit and the lower the costs. That is why you need to strive to make your property more profitable, and not hanging dead weight and devouring available reserves.

Profit is the main thing. Of course, there are people who disagree with this. Some argue that liquidity and cash flow more important (and too often ignored). But no one will deny that it is necessary to control the profitability of a company in order to ensure its financial health.

There are several ratios by which you can evaluate whether your company can generate revenue and control its costs.

Let's start with return on assets.

What is Return on Assets (ROA)?

In the broadest sense, ROA is the ultra version of ROI. Return on Assets tells you what percentage of every dollar invested in a business has been returned to you as profit.

You take everything you use in your business to make a profit - any assets such as money, fixtures, machinery, equipment, vehicles, inventory etc. - and compare all this with what you did during this period in terms of profit.

ROA simply measures how efficiently your company is using its assets to generate profit.

Take the infamous Enron. This energy company had a very high ROA. This was due to the fact that she created separate companies and "sold" her assets to them. Since its assets were thus taken off the balance sheet, the company appeared to have a higher return on assets and equity. This approach is called "denominator control".

But "managing the denominator" is not always a scam. In fact, it's a smart way to think about how to run a business.

How can we reduce assets so we can increase our ROA?

You are essentially figuring out how to do the same job for less. You might be able to rebuild it instead of throwing money away at new hardware. It may be slightly slower or less efficient, but you will have lower assets.

Now let's look at return on equity.

What is return on equity (ROE, from the English Return on Equity)?

Return on equity is a similar ratio, but it looks at equity, the company's net worth as measured by accounting rules. This metric tells you what percentage of profit you make for every dollar of capital invested in your company.

This is an important ratio no matter what industry you're in, and more relevant than ROA for some companies.

Banks, for example, take in as many deposits as possible and then lend them out at higher interest rates. Typically, their ROA is so minimal that it really doesn't relate to how they make money.

But every company has its own capital.

How to calculate return on equity?

Like ROA, this is a simple calculation.

net income / equity = return on equity

Here is an example similar to the one above, where your annual profit is $248 and your capital is $2,457.

$ 248 / $ 2,457 = 10,1%

Again, you may wonder if this is a good thing? Unlike ROA, you want the ROE to be as high as possible, but there are limits.

This can be explained by the fact that one company may have a higher ROE than another company because it has borrowed more money and therefore has more debt and proportionately less investment in the company. Whether this is a positive or negative factor depends on how wisely the first company uses its borrowed money.

How do companies use ROA and ROE?

Most companies look at ROA and ROE in conjunction with various other measures of profitability such as gross margin or net income. Together these numbers give you general idea about the health of the company, especially in comparison with competitors.

The numbers on their own aren't that useful, but you can compare them to other results in the industry or to your own results over time. This trend analysis will tell you which direction your company's financial health is headed.

Often investors care more about these ratios than managers within companies. They look at them to determine if they should invest in a company. This is a good indicator of whether a company can generate profits that are worth investing in. Likewise, banks will look at these numbers to decide whether to lend to businesses.

Managers in some industries find ROA more useful in decision making. Since this indicator reflects the profit generated by the main activity, it can be used by industrial or manufacturing companies to measure efficiency.

For example, construction company can compare its ROA with its competitors and see that the competitor has the best ROA, despite the high profit. Often for these companies, this becomes a decisive impetus.

Once you have figured out how to make more profit, you figure out how to do it with fewer assets.

ROE, on the other hand, is more relevant to the board of directors than to the manager, who has little influence on how much stock and debt a company has.

What mistakes do people make when using ROA and ROE?

The first caveat is to remember that none of these numbers are completely objective. The sales are subject to revenue recognition rules. Costs are often a matter of estimation, to say the least. Assumptions are built into both the numerator and denominator of formulas.

As such, income reported on the income statement is a piece of financial art, and any ratio based on these numbers will reflect all of these estimates and assumptions. The ratio is still useful, just remember that estimates and assumptions will always change.

Another problem is that you are using a number earned over a certain period of time (profit per Last year) and comparing it with a number at a certain point in time (assets or capital). It's usually wise to take average assets or stocks so that "you're not comparing apples and oranges."

With ROE, you also have to remember that equity is book value. The true cost of capital is the market capitalization of the company's shares. When you interpret this figure, remember that you are looking at book value and market value may be different.

The risk is that since book value is usually below market value, you may think you are getting a 10% ROE while investors think your return is much less.

You probably won't make an investment decision based on just one of these numbers, or even both of them. They are part of a large group of indicators that help you understand the overall health of the business and how you can influence it.