Definition of Return on Assets Ratio
The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average total assets during the same year.
The return on assets ratio for a regular corporation can be computed using the before tax earnings and/or the after tax earnings.
Example of Return on Assets Ratio
Assume that during its most recent year, a company’s income statement reported net income of $60,000. During the same period, the company’s 12 monthly balance sheets reported an average of $1,000,000 in total assets. The company’s return on assets ratio for the year was 6% ($60,000 divided by $1,000,000).
This company’s return on assets can be compared to other companies in the same industry.
