Return on assets

Return on assets refers to the ratio of company s net income to its total assets, computed as 

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Other ratios can easily be deduced from those hsted. For example, the return on assets (ROA) and the asset-turnover ratio (ATR) are... 

Value-oriented management concepts evolved from cost and profit controlling towards value based management concepts. Transparency on profitability of invested capital for the company and its shareholders is an objective of value-based management. Profitability indicators are related to capital indicators. Common indicators are Return on Assets (ROA), Return on Capital Employed (ROCE) and Economic Value Added (EVA ) as presented in table 3 (Hostettler 2002 Revsine et al. 2004). 

ROA Net nrofit Total assets Indicator to compare total profit return on assets specifically in asset-intensive industries... 

The incentive to build a pyro-hydrometallurgical plant is often based on political opinions and somewhat diffuse environmental public demands and therefore the decision process is complicated. The direct investment of such a plant is high the return on assets is relatively low, because of the unstable value and uncertain situation of feed materials (raw material or waste) and the fluctuating prices of end products. 

Profits allowed on sales of prescription medicines in the United Kingdom are limited to a target return on assets related to UK sales. 

There is a relationship between these two documents because information obtained from each is used to calculate the returns on assets and equity. Figure 9-1 is an operating profitability tree for a fictitious... 

Net profit margin Return on assets Return on equity... 

Return on assets (ROA) = net income -f- average total assets... 

Return on assets A profitability ratio reflecting a company s ability to generate net income as a percentage of its total assets. 

A life-cycle costing analysis showed that the savings on electricity would give a 22 per cent after-tax return on the 2.7 million investment. This ROI exceeded the 15 per cent that top management had established as a criterion for capital investments that increased production, and was far above the company s average return on assets of 10 per cent. Nevertheless the company rejected the proposal, indicating that a 30 percent ROI was the policy for projects that do not increase production. This decision, not untypical, was unfortunate for both the proposing firm and the nation. 

The continuing high interest and investment in pharmaceutical research cannot be attributed to guaranteed high revenues. Return on assets as a commonly used measure of industrial profitability for the... 

Since the equity is by definition (equation 6.31) the assets minus the liabilities (debt), the overall return on assets (ROA) can be expressed as... 

Company financial perfonnance from 1980 through 1998 may be found in Table 7.1 The return on assets (ROA) has been in the range of 6.0-7.5% and the return on equity (ROE) between 15 and 20% except for one year. These returns are typical of the median returns for a chemical company as presented at the end of the chapter in Table 7.23. For comparison purposes. Table 7.24 is a presentation of the returns on assets and equity for the companies in Chapter 7. Table 7.2 summarizes financial information on Air Products for selected years between 1980 and 1998. 

Year Pretax profit margin (%) Long-term debt tied to capital expenditures (%) Return on assets (%) Return on equity %)... 

The company financial performance for ADM is found in Table 7.3, and Table 7.4 contains further income and balance sheet statistics. The returns on assets and equity are presented in at the end of the chapter (Tables 7.23 and 7.24). 

Among oil companies Exxon has been one of the most profitable companies. In 1998 the return on assets was 6.8% and the return on equity was 14.8% (Table 7.9), compared with the median of the top 20 refiners of 2 and 5%, respectively (see Tables 7.23 and 7.24). Exxon s net revenue in 1998 declined about 15% from 1997 (Table 7.10). This was due in part to restructuring, and softness in the markets, as well as to fluctuation in crude oil prices. 

The company financial performance reflected a lower pretax margin as well as lower returns on assets and equity (see Table 7.11). Sales were down from 1997 by about 500 million, resulting in lower operating income as shown in Table 7.12 The median returns (Table 7.23) for 21 forest products companies are low compared with other companies in the CPI (Table 7.24). International Paper s returns are low compared with other forest product companies. International Paper in years past has had a more profitable record, but the restructuring expenses and lower sales in 1998 reflect lower financial performance. Projected price increases for paper, corrugated paper, and printing papers should help sales increase, however. 

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