Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Change in Net Working Capital (NWC) Formula
- Cash Flow from Operations Ratio
- Cash Flow Per Share
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score

- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Days Sales Uncollected
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula
- Markup Percentage Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Overcapitalization
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

Related Courses

## Return on Operating Assets Definition

Return on Operating Assets is defined as the percentage return from assets that are used in core revenue-generating activities of the business. It is an efficiency ratio which is one of the important ratios used in financial planning and analysis.

### Return on Operating Assets Formula

In order to calculate Return on Operating Assets, it is slightly different from the return on total assets formula which takes into consideration total assets owned by the firm. In this case, we only take the current assets which are primarily involved in generating revenue for the business. So it has two broad components: –

**Net Income:**Net income involves the residual income of the business which is left for the distribution to the shareholders.**Current Assets:**Current Assets involves those assets like cash, accounts receivables, and other current assets of the company which is responsible for the generating of revenue/ income.

The formula for return on operating assets is net income over the current asset and it is expressed in percentage form.

**Return on Operating Assets Formula = Net Income / Operating Assets**

The higher is the return, the better it is for the company. Some examples of operating assets include cash, accounts receivable, inventory and the fixed assets that contribute to everyday operations.

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### Calculation of Return on Operating Assets (with Examples)

Below are some of the examples to understand this in a better manner.

#### Example #1

**Arabic construction limited is a growing construction company in the middle east and they prepare their financial statements are the IFRS reporting standards. By looking at the annual report of the company for the fiscal year 2013. The balance sheet asset number stands at $2,000,000 out of which 50% are of current nature. The reported Net income for that particular period is $500,000. Does an analyst want to calculate the Return on the operating asset?**

**Solution:**

First we need to calculate the portion of current assets = 50% of $2,000,000

Current Assets =2,000,000 *50 =$1,000,000

**Calculation of ROOA**

= 500,000 / 1,000,000

**ROOA =50%**

#### Example #2

**XYZ polymers limited is a prepare their financial statements are the IFRS reporting standards. By looking at the annual report of the company for the fiscal year 2016. The balance sheet asset number stands at $2,500,000 out of which 50% are of current nature. The reported Net income for that particular period is $10,000. Does an analyst want to calculate the Return on the operating asset?**

**Solution:**

First we need to calculate the portion of current assets = 50% of $2,500,000

Current Assets= 2500000*50=$1,250,000

**Calculation of ROOA**

=10,000 / 1,250,000

**ROOA =1%**

### Advantages

- The formula is used in the industry to calculate the return on the asset which is an important return ratio matrix for the investors and the shareholders and it is used for financial ratio comparison and peer group analysis.
- It is different from the return on total asset and the analysis becomes more meaningful because it takes into consideration only those asset that is actually used for the generation of revenue and operating in the day to day business.

### Limitations

- Since the formula takes into consideration the book value of the asset it significantly understates the value of the asset from the actual market value of those assets.
- The formula needs to be adjusted in the financial analysis if companies use different accounting methods or depreciation methods for the assets.

### Conclusion

ROOA is used to measure the company’s operating profitability and operating assets utilization efficiency. Higher ratios indicate higher profitability, while ratios below 1 mean inefficient use of the operating assets. Nevertheless, ROOA is an important formula for financial analysis.

### Recommended Articles

This has been a guide to Return on Operating Assets. Here we discuss how to calculate Return on Operating Assets along with examples, advantages, and limitations. You can learn more about financing from the following articles –