Return on Operating Assets

The return on operating assets is a financial ratio that deals with the measurement of revenue that is generated only from those assets that are actively being used. The major advantage of this ratio is that management doesn’t have to waste their time and effort as they minimize the book activities of all the other assets that are not being in use currently by the business. The calculation of the return of operating assets can be done by dividing the net income after paying the taxes with the gross amount of the assets that are being used to generate the revenue that is transformed into the net income. However while calculating the return on operating asset ratio you need to address two issues that are depreciation and unusual income of the business.

Depreciation is not included in the gross amount of the operating assets as it can greatly transform the results. In addition to that any extra income that is not generated by using the operating assets is also subtracted from the net income used as numerator.  The example of return on operating assets can be shown as under along with its formula:-

Net Income of Company ABC = $ 500,000

Gross Amount of assets on books = $ 4,000,000

Unproductive or Unused Assets = $ 400,000

Return on Operating Assets = Net Income / Assets used to generate revenue

Return on Operating Assets = Net Income/ Productive Assets – Unproductive Assets

Return on Operating Assets = 500,000/ 4,000,000 – 400,000

= 13.8 %

 

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