Return on total assets ratio
The return on total assets ratio compares a company’s total assets with the amount of money it returns to its shareholders. It is one of five ratios used to assess a company’s profitability along with return on shareholders’ equity, gross profit margin ratio, return on common equity and net profit margin ratio.
The return on total assets ratio indicates how well a company’s investments generate value, making it an important measure of productivity for a business. It is calculated by dividing the company’s earnings after taxes (EAT) by its total assets, and multiplying the result by 100%.
More on the return on total assets ratio
If ABC Co. has EAT of $20,000 and total assets of $300,000, its return on total assets ratio would be:
($20,000 / $300,000) x 100% = 6.7%
As a general rule, the higher the percentage, the better. Business owners and other analysts will usually want to compare the return on total assets ratio for a specific company with others in the same industry to get a true picture of how well the business is performing.