RETURN ON TOTAL ASSETS

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RETURN ON TOTAL ASSETS


This ratio is computed to know the ‘productivity of the Total Assets’. This ratio is calculates the relationship between the net profit before interest and tax and total assets.


Objectives: - The objective of calculating this ratio is to find out how efficiently the total assets have been used by the management.


Formula:-

Return on Total Assets = Net Profit Before Interest and Tax x 100
Total Assets



Here the Total Assets is calculated by taking together the current assets and also the fixed assets of the company.


Significance:-

The return on total assets is a useful measure of the profitability of all financial resources invested in the firm’s assets. It evaluates the use of total funds without any regard to the sources of funds.


This ratio is particularly useful to evaluate the performance of the divisions in a multi-divisional firm. Generally, these divisions have the responsibility of using and controlling the assets without any responsibility towards the raising and utilizing of funds.


This ratio also indicates whether the company is in a position to declare dividends to shareholders. Since it does not recognize the effect of increase in equity capital as a result of retention of earnings, this ratio has to be carefully used.
 
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