Return on assets is calculated using several formulas. Below are the two most common:
ROA = Net Profit / Average Assets x 100%
The net profit indicator is determined by subtracting all production costs, including debt and tax liabilities, from the organization's total revenue. The average asset size is calculated by adding this indicator at the beginning and end of the period and dividing the resulting sum by 2.
ROA = Profit before tax / Cost of assets x 100%
Here, instead of net profit, the profit before tax indicator is used.
If the first formula is used to calculate the return on assets, then information about the company's profit and assets will be required.
Let's assume that the supermarket's mom data package profit before tax was 15,000,000 rubles, and all expenses (salaries of employees, logistics, purchase of goods, etc.) - 6,500,000 rubles. We find the net profit using the formula:
Net profit = Profit – Expenses.
Net profit = 15 million – 6.5 million = 8.5 million rubles
Then we determine the average size of assets. Let's assume that they demonstrated stability during the year and amounted to 10,000,000 rubles. We substitute the obtained values into the ROA formula:
ROA = (8.5 million / 10 million) x 100% = 0.85 x 100% = 85%
The calculation shows that the return on assets for the supermarket will be 85%. Simply put, for every ruble of the organization's assets, there is a net profit of 85 kopecks.
ROA calculation formula
Let's look at an example with a change in the value of assets. Thus, at the beginning of the year their value was 10,000,000 rubles, and at the end of the year it increased to 12,000,000 rubles.
We determine the average value of assets:
(10 million + 12 million) / 2 = 11 million rubles.
ROA = (10 million / 11 million) × 100% = 90.9%.
It is important to know that the Return on Assets indicator can have a positive, negative or zero value. The higher the ROA, the greater the company's profit, and, accordingly, the assets are used with maximum efficiency.
In a situation where the value of assets increases, profit remains at the same level, and the ROA value decreases, business expansion is not recommended until some processes are changed. If all these figures grow, but the profitability indicator is also in the plus, this means that the company is functioning effectively and can safely expand.
To evaluate the effectiveness of a business, it is recommended to compare the Return on Assets of an organization with the indicators of similar competing firms that have approximately the same asset value. If competitors are doing well, then you need to think about how to make your funds work better.
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Alexander Kuleshov
Alexander Kuleshov
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