Return on average assets measures a company’s net income, or profit, as a percentage of the average assets it holds during an accounting period. Assets are a company’s resources, such as inventory and manufacturing plants, that it uses in its operations. An acceptable return on average assets varies among different industries. In general, a higher percentage return on average assets means a company uses its assets more efficiently to generate profit. You can calculate a company’s return on average assets using information from its annual reports.

Find a company’s income statement and balance sheet in its most recent 10-K annual report, and find the balance sheet in its 10-K annual report from the previous year. You can download a public company’s 10-K annual report from the investor relations section of its website or from the U.S. Securities and Exchange Commission’s online EDGAR database.

Identify the company’s net income at the bottom of its income statement, and identify the amount of total assets on each balance sheet. For example, assume a company had $100,000 in net income and $900,000 in total assets in its most recent year and $1.1 million in total assets in the previous year.

Add together the total assets from each year, and divide your result by 2 to calculate the company’s average total assets. A balance sheet shows account values only at the end of an accounting period. Average total assets represents the approximate amount of assets a company held throughout the year. Continuing the example, add $900,000 to $1.1 million to get $2 million. Divide $2 million by 2 to get $1 million in average total assets.

Divide net income by average total assets. In this example, divide $100,000 by $1 million to get 0.1.

Multiply your result by 100 to calculate the company’s return on average assets as a percentage. In this example, multiply 0.1 by 100 to get a return on average assets of 10 percent, which means the company generated profit that is equal to 10 percent of its average total assets.

#### Tips

- Analyze a company’s return on average assets over multiple years to determine whether its efficiency is improving or declining.
- Compare a company’s return on average assets with those of its competitors. A company with a higher return on average assets may have a competitive advantage over its peers.

#### References

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