25 Need-To-Know Management Ratios

6

Performance drivers

The chapter reviews the drivers of:

• Return on investment
• Profit margin
• Asset turnover

The key drivers of ROTA

ROTA is a key tool in directing management’s day-to-day activities. It provides a benchmark against which all operations can be measured. However, as a single figure it simply provides a target. To be useful in decision-making it must first be broken down into its component parts.

We will do this in two stages.

• First, we will divide the main ROTA ratio into two subsidiary ratios.
• Then we will divide the subsidiary ratios into further detailed constituents.

ROTA is calculated as:

We can relate ‘sales’ to both ...