Return on Assets/ Return on Investment
Return on Assets or ROA is a way to measure how productive
the assets of the company are. Basically put it is a measure, expressed in a
percentage to show whether or not the company’s assets are being used
profitably.
Return on Assets (ROA) and Return on Investment (ROI) are
basically one and the same. To calculate
ROA we take the Net Income and divide it by the Total Assets
= Net Income / Total
Assets
Expressed as a
percentage
Generally we determine this on an annual basis but any specific
time period will do. So, monthly would be a way to calculate ROA but, again,
generally speaking this is done on a yearly basis.
If Billy-Bob has a total investment of $1,000 in his still
(including all corn mash in inventory, all jugs in inventory and his pickup)
then that is our figure for total assets.
If Billy-Bob sells $100 worth of shine after expenses are
accounted for then we divide the figures.
= $100 /1000
10% Return on Assets
In business we often use terms like ROA and ROI instead of
saying Return on Assets etc. I think this is so that we appear to be smarter
than we actually are. It is often intimidating for someone to talk to you in
jargon that you don’t understand. I
learned a long time ago to speak up and say, “could you please put that in
stupid terms for us stupider people?” If the person stops and explains it then,
you have learned what they were talking about. If the person belittles you for
asking the question then, you have learned that they are a jerk and probably
don’t know much more than a few terms. In this case, take your business
elsewhere.
Tell us about a time when someone tried to intimidate you
with jargon.
Disclaimer
The opinions or advice listed in this blog or website should be used as a place to start only. It is not a substitute for the use of a professional.
Please be sure to consult your attorney and/or accountant with any specific questions.
There is no one right answer to any business question that will cover all circumstances. Please Visit McClendon Enterprises
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