How to calculate the return on assets?

Capital productivity is the coefficient thatdirectly characterizes the effectiveness of the use of financial resources of the organization. It is thanks to capital productivity that you can find out how much revenue one unit of fixed assets costs. So, let's look at how to calculate the return on assets.

Separately, the ratio of capital productivity is not at allsays whether the productivity of fixed assets is effective or not, but it shows the extent of the ratio of revenue that was obtained after the company realized the goods to the value of fixed assets available to the organization. Concerning the efficiency of the use of fixed assets, it is possible to draw the right conclusions if we compare the rate of return on assets for several years, or by comparing this indicator with the return on assets of similar enterprises.

Calculation of the rate of return on assets

You can calculate the return on assets using the following formula:

Capital productivity is the revenue divided by the fixed assets of the enterprise.

Thus, the return on assets is calculated. The calculation formula is quite simple, so you can calculate this figure without resorting to specialized programs.

Indicators should be taken, considering their average for the entire period, which has a positive value of revenue.

Also, the return on assets can be calculated usingthe initial value of fixed assets, but the balance sheet contains only the residual value of funds, so this amount will be very problematic to calculate.

The turnover indicator is a component of the return on assets ratio. It is also necessary when analyzing the profitability of an enterprise.

Normative value

It is worth noting that the coefficient in itselfthe return on assets can not have a normative value. Depending on the sectoral features, this indicator is highly susceptible to change in different sectors. If the production is, for example, capital intensive, then the coefficient will be lower, if we consider the indicator in its dynamics, then with the growth of the indicator, we can state the intensity of the use of production equipment.

Thus, if you want to increasereturn on capital, then you should either increase the revenue figure when using the appropriate equipment, or produce products that have a large added value.

The article examined how to determine the return on assets. It is this coefficient that is necessary for determining the profitability of an enterprise.