Return on Assets Employed

Subsection of: Financial Ratios, Calculators and Impressing Investors

Provided by the International Finance Corporation

This measures how much profit is generated from using the assets of the business. One of the true skills of managing a business is to get the best use out of assets and to maximise the profit from each asset employed. Having a machine running at only 50% productivity or lying idle is a waste of resources that could be put to better use elsewhere. Banks and potential investors are very keen to see how assets are managed as this will provide them with valuable information about the quality of management.

As a general rule, the return achieved should at least be greater than that achievable if you had simply stuck your money in a bank deposit account instead of buying the asset. Again, though, the higher the better is the rule.

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