One of the indicators of the effectiveness of the economic activity of the enterprise is the return on assets. The formula of this indicator comprehensively reflects the degree of effectiveness of the use of monetary, labor and material resources, including natural wealth. Profitability index (coefficient) is calculated by the ratio of profit to resources, flows or assets that form it. Profitability is expressed by the amount of profit received in a unit of invested funds, as well as the profit that each earned monetary unit carries.
There are five main indicators that reflect the return on assets, the formula of which has some differences.
Firstly, it is an indicator of the overall return on investment, which gives information on how much of the profit (balance) is accounted for each ruble of the enterprise’s property, in other words, it shows the efficiency of capital use.
The second indicator is the return on investment calculated on net profit.
The third factor is the profitability of non-current assets, the formula of which establishes the relationship between the amount of profit received from the use of own resources and the value of their own invested resources.
Also used is the profitability indicator of financial long-term assets, which determines the effectiveness of the company's investments in the activities of other enterprises.
The use of funds invested in the work of your own enterprise in the long term, shows the profitability of capital (permanent).
A relative performance indicator is the return on assets. The coefficient formula indicates that this value is the quotient of dividing the net profit received during the period by the total assets of the enterprise for the same period. This financial ratio belongs to the profitability group and shows the ability of assets to make a profit.
In a general sense, return on assets is a kind of indicator of the effectiveness and profitability of a firm, which is not affected by the amount of borrowing. It is used to compare the work of enterprises belonging to one industry.
Thus, the return on assets (formula) is equal to net profit divided by the average value of assets, the components are taken for an equal corresponding period of time.
The economic return on assets shows the amount of profit attributable to each ruble invested in the capital of the company.
Return on current assets: formula
This indicator is calculated by the ratio of net profit, which remains at the disposal of the company after tax, to current assets. The resulting coefficient indicates the company's ability to provide a sufficient amount of profit relative to the working capital used. An increase in the value of the indicator informs about an increase in the efficiency of the use of current assets.
The total profitability is calculated by the ratio of retained earnings to the size of the average annual value of current and fixed assets. This indicator is a key indicator used in the analysis of company profitability. If necessary, a more accurate definition of the development of the enterprise is calculated by such key indicators as the number of asset turns and the profitability of one turnover.
The last indicator reflects the share of profit that falls on each ruble earned. The coefficient is calculated by the ratio of net profit to the number of sales, expressed in money. The obtained value indicates the company's pricing policy, its ability to control costs.