The return on total assets compares the earnings of a business to the total assets invested in it. The measure is intended to discern whether management can effectively utilize assets to generate a reasonable return.
The calculation of the return on total assets is earnings before interest
The return on total assets compares the earnings of a business to the total assets invested in it. The measure is intended to discern whether management can effectively utilize assets to generate a reasonable return.
The calculation of the return on total assets is earnings before interest and taxes (EBIT), divided by the total assets figure listed on the balance sheet. The EBIT figure is used instead of net profits in order to focus attention on operating earnings. The formula is:
Earnings before interest and taxes ÷ Total assets
For example, ABC International reports net income of $100,000.