How to calculate return on total assets. Analysis of enterprise profitability indicators
Definition
Return on assets (returnonassets, ROA) - financial ratio characterizing the return on the use of all assets of the organization. The ratio shows the organization's ability to generate profit without taking into account the structure of its capital (financial leverage), the quality of asset management. In contrast to the indicator equity", this indicator takes into account all the assets of the organization, not just own funds. Therefore, it is less interesting for investors.
Calculation (formula)
Return on assets is calculated by dividing net profit(usually for a year) by the value of all assets (i.e. the organization's balance sheet):
Return on Assets = Net Income / Assets
The result of the calculation is the amount of net profit from each ruble invested in the assets of the organization. Often, in order to get a more visual, the percentage in the formula is multiplied by 100. In this case, the indicator can also be interpreted as "how many kopecks each ruble invested in the assets of the organization brings."
For more accurate calculations, not the value on a specific date is taken as the "Assets" indicator, but the arithmetic average - assets at the beginning of the year plus assets at the end of the year are divided by 2.
The net profit of the organization is taken according to the "Profit and Loss Statement", assets - according to the Balance Sheet.
If the calculation is made not for a year, but for another period, then a formula is used to obtain a result comparable to the annual form (in particular, in the program "Your financial analyst"):
Return on assets \u003d Revenue * (365 / Number of days in the period) / ((Assets at the beginning + Assets at the end) / 2)
Normal value
Return on assets is highly dependent on the industry in which the company operates. For capital-intensive industries (such as railway transport or power industry) this indicator will be lower. For service companies that do not require large capital investments and investments in working capital, the return on assets will be higher.
Assessment of economic and financial activities enterprises are produced primarily on the basis of profit, revenue and sales volumes. These indicators are expressed in units, they are called absolute. But for an adequate assessment of the company's position in the industry and comparison of its business with competitors, they are not enough.
For this reason, they resort to relative indicators, expressed as a percentage - profitability (, assets), financial stability.
They allow a broader view of the business picture.
What does return on assets mean
This parameter shows how effectively the company uses its assets to generate revenue, and how well it manages them.
A similar indicator - return on equity - is more important when assessing the company's performance by investors. It takes into account only the company's own assets.
Whereas the considered indicator of return on assets includes all assets companies and evaluates overall quality managing them without analyzing the capital structure. It demonstrates the effectiveness of the management of the enterprise.
This indicator is also called rate of return.
Exists three calculation options – total score profitability, working capital and beyond current assets.
Current and non-current assets
Before proceeding to consider the calculation methodology, it is necessary to clearly understand the types of assets that are divided into current and non-current.
current assets- these are the company's resources that will be completely consumed in the process of creating a product, and will fully transfer their value to the final product at the end of the production cycle. They are necessary for the organization of uninterrupted economic activity. Consumed once and completely.
An example of a company's current assets are such types as raw materials and semi-finished products, cash, stocks. finished products in stock, financial debt of third parties to the enterprise (). 
Fixed assets also called fixed assets. They do not directly participate and are not consumed in production, but ensure its functioning.
Buildings and structures are an inactive part. They remain unchanged for years and require a maximum of repair (less often - reconstruction).
Machinery and equipment, as well as engineering technology and accessories, are an active part directly involved in production activities while maintaining the properties and appearance. This distinguishes them from current assets that are completely consumed in the production cycle. This subtype of fixed assets usually requires modernization and reconstruction more often than, for example, a workshop building.
Patents and other products of intellectual activity are also classified as fixed assets. As well as perennial green spaces and animals, long-term capital investments, knowledge and skills of personnel, unfinished buildings.
This type of assets is periodically revalued to determine the real value, taking into account depreciation. This depreciation is also called depreciation.
Current and non-current assets are reflected in various sections of the balance sheet. Non-current in the first, current - in the second.
Return on company assets
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Calculation formula
Having dealt with the classification of assets of two types, consider the formula for calculating profitability for both options:
current assets
Return on current assets = Net profit of the reporting period (in rubles) / Average cost of current assets (in rubles).
referred to as net income. All indicators for calculations are taken from the corresponding columns of the balance sheet.
Calculated value shows how much profit falls on the monetary unit invested in current assets. One of the most important indicators for assessing the financial and economic activities of an enterprise, since it is working capital that guarantees the uninterrupted operation of production and finance turnover.
Calculated as a percentage (%) and evaluates the effectiveness of the use of working capital by the company. The higher it is, the more effectively the organization works in this direction.
To conquer new markets and expand production, it is necessary to manage working capital wisely and use it rationally. This indicator is an indispensable assistant to management in achieving this goal.
Fixed assets
Return on non-current assets = Net profit of the reporting period (in rubles) / Average cost of non-current assets (in rubles).
By analogy, the ratio shows how effectively non-current assets are used.
Balance calculation
To make calculations, you need a balance sheet and a profit and loss statement for the same period.
Substituting the reporting line codes into the formula, we get:
- Return on assets = line 2400 of the Profit and Loss Statement / line 1600 of the Balance Sheet.
- Return on current assets = line 2400 of the Profit and Loss Statement / line 1200 of the Balance Sheet.
- Return on non-current assets = line 2400 of the Profit and Loss Statement / line 1100 of the Balance Sheet.
About this indicator and the procedure for its calculation, see the following video:
Analysis of indicators
The profitability ratio is a very important indicator of the state of affairs in the company, in fact, the return on investment.
Calculation result must be positive. If the result is negative, there is reason to be wary, the company operates at a loss.
Wherein minimum allowable value indicator for each enterprise individually and the decision to establish it should be made by the company's management after analyzing the competitive market and the industry as a whole.
It is illogical to compare the level of profitability of companies in different industries and. Their performance is not subject to adequate assessment due to the specifics of the business and a significant change in the average return on assets depending on the industry.
For example, depending on the type of business activity, average rates of return on assets:
- Financial sector - 11%.
- Manufacturing company - 15-19%.
- Trade enterprise - 16-39%.
The maximum indicator of the above industries will be in trading company(due to the small size of the indicator of non-current assets). Manufacturing enterprise, on the contrary, has a large amount of assets of this type, so the average return on assets is lower. In the field of finance, there is high competition and, accordingly, the lowest value of the indicator.
Companies that are completely different in scale are also wrong to compare with each other in terms of return on assets. A large plant feels good at 2%, and a small business in the same area risks going bankrupt at 12%.
Due to the difficulty of comparing this indicator, conclusion is as follows: a decrease in the indicator of an enterprise from year to year is bad, growth is good. Lower than the industry as a whole is bad, higher is good.
If the score deteriorates due to decrease in net profit obviously the company isn't working hard enough to make more money.
Another reason is the increase in the cost of production and sale of the product (the reason may be hidden even in the irrational use of gas, electricity and water resources).
Problem points may be too large volumes of unrealized final product in warehouses, a sharp increase in accounts receivable and much more.
Based on the above, there is no and cannot be an unambiguous recipe for increasing profitability, and, therefore, profitability! Each identified situation requires the implementation of its own set of measures.
But the unequivocal conclusion is this - all forecasting, budgeting and planning activities should have one goal - profit maximization! Management must constantly be on the lookout for new solutions to increase revenue, since measures that are currently effective will sooner or later exhaust themselves.
Any entrepreneurial activity, regardless of its scale, requires a correct analysis of financial indicators to achieve the highest efficiency of all resources.
Determining the profitability of current assets makes it possible to find out how efficiently the organization uses the resources provided to it to conduct its core business.
Return on Asset Formula: Ratios and Balance
Return on assets is calculated according to a formula, the indicators for which are taken from the main financial statements.
The sources of indicators for determining the efficiency of asset use are the following accounting documents:
- balance sheet (form 1);
- profit and loss statement, formed on the basis of the balance sheet (form 2);
Both of these documents are required to be submitted to tax service for enterprises that are on the traditional system of taxation.
There are several ways to calculate the return on assets of an organization. All of them are characterized as the ratio of net profit received for a certain period of time to the assets involved in the same time period.
or the calculation of the return on assets can be done in the following ways:
- using the standard economic formula;
- using a formula with balance data;
- using the formula for calculating the coefficient adjusted for the amount of interest on loans (if any);
- using the net assets of the enterprise or current;
Economic formula for return on assets
The standard formula for identifying the performance of an organization's assets consists of two parts:
- numerator, which contains the amount of net profit received for a certain time period;
- the denominator, which contains the average value of the assets involved by the organization in the same time period in which the profit in the numerator was received.
RA = Net Income/Average Assets
This is the remainder Money after deducting from the total income all costs and the amount of taxes for a certain period.
Return on assets formula
There is another option for calculating the return on assets. It is adjusted for the amount of interest paid on loans by the firm.
This method makes the calculation of the indicator independent of the source of funding for the organization's core activities.
With this type of formula, 4 indicators are already used:
- net profit for a certain period;
- interest paid on loans and borrowings for the same period;
- marginal rate of corporate income tax;
- average value of total assets;
The average value of total assets can be calculated by adding all assets at the beginning of the period and at the end and dividing the resulting number in half.
Pa \u003d ((Net profit + Interest * (1 - income tax rate)) / average total assets) * 100%
Balance sheet return on assets formula
The formula for calculating the efficiency of the organization's assets can be presented in a different form, using the data of the balance sheet and income statement:
Ra \u003d (line 2300 form 2) / ((line 1600 form 1 for n.g. + line 1600 form 1 for kg) / 2)
Return on Net Asset Formula
Profitability net assets shows how much profit can be obtained from each unit invested in the company's activities.
For its calculation, only two indicators are used:
- reading profit in the numerator;
- net assets in the denominator;
It is customary to designate this indicator as RONA:
RONA = Net Income/Net Assets
Profitability formula for current assets
The efficiency of using current assets or the profitability of current assets is calculated using the value of the average total assets.
This ROCA coefficient is denoted:
ROCA = Net profit / avg. sum. assets
What formula is used to calculate the return on assets of an enterprise?
All of the above formulas are used to determine the efficiency of all enterprise resources and the rationality of their use.
Each of the formulas provides certain information necessary for a complete analysis of the financial and economic activities of the organization and further conclusions based on this analysis.
What is the return on assets of the enterprise, and what does it show?
The return on assets of an organization shows how efficiently all available resources work, that is, how much profit can be obtained from each penny invested in the activities of the company.
Such resources include:
- materials and raw materials needed for production or sale;
- fixed assets that the company needs for production or sale;
- funds needed to pay staff;
Return on assets (ROA– return on assets)
Return on assets is commonly referred to as ROA. This means return on assets. In translation, this phrase sounds like the return on assets.
ROA is one of the most important for analyzing the financial and economic performance of an organization. To determine this indicator, use the ratio of the number showing the profit of the organization and medium size total assets.
As a time period on which this indicator is considered, it is usually one year, that is, four full quarters.
Profitability includes a whole system of indicators that characterize the effectiveness of the organization.
One of these indicators is the coefficient return on assets, it is designated as ROA (English returnonassets). The indicator of return on assets can be attributed to the system of coefficients "Profitability", showing the effectiveness of management in the field of company's cash.
The return on assets (ROA) ratio reflects the amount of cash that falls on a unit of assets available to the organization. An organization's assets include all of its property and cash.
The formula for the return on assets on the balance sheet shows how great the return on funds invested in the property of the enterprise is, what profit each ruble invested in its assets can bring to the enterprise.
Balance sheet return on assets formula
The formula for calculating the return on assets in general view as follows:
R = P / A × 100%,
Here R is the return on assets;
P - profit of the enterprise, depending on what kind of profitability is required - net profit or profit from sales (taken from line 2400 of the balance sheet);
A - assets of the enterprise (average value for the corresponding period).
Return on assets is a relative indicator and is calculated as a percentage.
The value of return on assets according to the balance sheet
The balance sheet return on assets formula is used in practice by financial analysts to diagnose a company's performance.
The return on assets reflects the financial return on the use of the organization's assets.
The main purpose of using the return on assets indicator is to increase its value when taking into account the company's liquidity. With this indicator, any financial analyst can quickly analyze the composition of the company's assets and evaluate their contribution to the aggregate of total income. In the case when any asset does not contribute to the company's income, then it is beneficial to abandon it (by selling or removing it from the company's balance sheet).
Types of return on assets
The balance sheet return on assets formula can be calculated for three types of assets. Allocate profitability:
- For non-current assets;
- For current assets;
- By total assets.
Formula features
Non-current assets are long-term assets used by the enterprise for a long time (from 12 months). This type of property is usually reflected in Section I of the balance sheet, including:
- fixed assets,
- intangible assets,
- long-term investments, etc.
The formula for the profitability of non-current assets in the denominator contains the total for section I (line 1100), while the profitability of all non-current assets in stock is obtained.
If necessary, the profitability of each type of asset is analyzed, for example, fixed assets or a group of non-current assets (tangible, intangible, financial). In this case, the formula for the return on assets on the balance sheet will contain data on lines reflecting the corresponding property.
The simplest method for calculating the average value of assets is to add the beginning and end of the year and divide by 2.
Profit for the numerator the formula for return on assets on the balance sheet is taken from the report on financial results(form No. 2):
- sales profit is shown on line 2200;
- net profit - from line 2400.
Examples of problem solving
Net income (line 2400)
2014 - 600 thousand rubles.
2015 - 980 thousand rubles.
2016 - 5200 thousand rubles.
Cost of non-current assets (line 1100)
2014 - 55500 thousand rubles.
2015 - 77600 thousand rubles.
2016 - 85800 thousand rubles.
Determine the profitability of non-current assets on the balance sheet.
R = P / A × 100%,
Let's calculate the rate for each year:
Conclusion. We see that the return on assets on the balance sheet increased from 1.08% in 2014 to 6% in 2016. This indicates an increase in the efficiency of the enterprise.
Net profit on the line 2400 BB - 51 thousand rubles,
Financial ratios
Financial ratios- it relative performance financial performance of the enterprise, which express the relationship between two or more parameters.
To assess the current financial condition enterprises apply a set of coefficients that are compared with the standards or with the average performance of other enterprises in the industry. Ratios that go beyond the normative values indicate the "weak points" of the company.
Analysis of all financial ratios produced in the program FinEcAnalysis.
To analyze the financial condition of the company, financial ratios are grouped into the following categories:
Profitability ratios
Liquidity ratios (solvency)
Turnover ratios
Market Stability Ratios
Financial stability ratios
The coefficients of the state of fixed assets and their reproduction
Formulas of financial ratios are calculated on the basis of financial statements:
The formula for calculating the return on assets on the balance sheet
As you know, the goal entrepreneurial activity organization is to make a profit. However, it is pointless to evaluate the efficiency of doing business based only on this indicator - it does not take into account the ratio of invested costs and income received. Therefore, to assess the activities of the enterprise, relative indicators are used, on the basis of which it is possible to draw conclusions about the effectiveness of the functioning of production.
Gross margin ratio
The indicator determines how many rubles of gross output are created per 1 ruble of sold and sold products. Gross profit margin is calculated by the formula:
Gross Margin Ratio = Gross Profit / Revenue from Sales of Goods
Gross margin = p.029 Form No. 2 / p.10 Form No. 2
Cost-benefit ratio shows the ratio of profit before tax to the sum of the costs of production and sales of products. The calculation formula is as follows:
ROI = Profit before tax / Cost of Goods Sold
Cost-effectiveness ratio = p. 140 Form No. 2 / (p. 20 Form No. 2 + p. 30 Form No. 2 + p. 40 Form No. 2)
| Exercise | Find the profitability of the enterprise by gross profit. The following balance sheet data is available: | The company's revenue (line 2110): 1,600,000 rubles.
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