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Return on total assets definition

Description

Return on total net assets is a ratio that evaluates company’s operating profit (EBIT) against total net assets. This ratio is a part of ratios that shows how efficiently the assets are being used. Data for this ratio is collected from the balance sheet (total net assets) and income statement (operating profit). Key difference between ROA and ROTA is a letter “T” that means that while calculating ROTA we use total net assets instead of total assets and EBIT instead of net income.

ROTA is an important ratio for company’s owners, because it shows how efficiently company uses its assets.

Norms and limitations

There are no fixed standards for ROTA.

Although, the higher the coefficient from this calculation the more effectively company is using its assets.

Formula

Earnings before interest and taxes (EBIT) equal net income plus interest expense plus taxes.

Total Net assets equal total assets minus depreciation and any allowances for bad debts.