- Return on Total Assets = Earnings Before Taxes (EBT) / Total Assets
- It shows the ability of the company to use its financial resources to generate net profits.
- It also measures the performance of the total assets of a company, as well as its individual departments, and is a type of management evaluation and control.
- The higher the ratio, the greater the efficiency with which the company’s funds are employed and therefore the more profitable the company’s capacity.
Business actions to improve the Ratio
- Increase in Earnings Before Taxes
- Reduce Total Assets. Repayment of liabilities through Cash, Liquidation of Fixed Assets and repayment of liabilities, Liquidation of “dead” Inventories (usually below cost), Reduction of Receivables.
