Operating Performance and Return on Assets
Profits are an important indicator of success, but we also need to consider how much was invested to generate those profits. For example, profits of a million dollars are not so impressive if the firm invested a trillion dollars to earn them. Shareholders expect managers to use their resources efficiently. If the firm is not generating an acceptable rate of return on the resources made available to them, then they need to redeploy them to some other use. If the firm has no better uses, then they should return the resources to shareholders (via dividends or stock repurchases) and let the shareholders invest them elsewhere.
- Operating Performance and Return on Assets
- from Financial Literacy for Managers: Finance and Accounting for Better Decision-Making
- Publisher: Wharton Digital Press
- Released: May 2012
Return on assets (ROA) is an important performance measure that helps determine how profitable a company is in relation to its resources—or how well it is using its assets to generate revenue. Learn how to calculate, evaluate, and improve ROA.
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