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What is the return on assets ratio?

The return on assets ratio, or return on total assets ratio, relates a company's after tax net income during a specific year, to the company's average total assets during the same year.

Let's assume that a company had $60,000 of net income after tax during a recent year. During the same 12 month period its total assets averaged $1,000,000. Its return on assets ratio for the year was 6% ($60,000 divided by $1,000,000).

You would compare this company's return on assets to other companies in the same industry.