Return on Investment Ratio

The return on investment ratio measures the amount generated for every dollar that is invested

The return on investment ratio helps a company determine the income that they earn for every dollar that is invested in the company.

This ratio can help a company determine how profitable a project, division, or even the entirety of the company is. As with other ratios, the end result of this should be compared with historical data and companies from the same industry. It can help determine the profitability and competitiveness of the company or its internal projects. It should be reported as a percentage.

The average total assets value in the above equation is found by adding the ending balance of assets at the start and end of the period and dividing by two.

Examples

Company ABC had a net income of $1,000. They started the year with $5,000 in assets and ended the year with $10,000. Find the return on investment ratio.

(5,000+15,000)/2=10,000

1,000/10,000=0.1 or 10%

In 2017, Apple Inc. had a net income of $48,351 million. The ending balance of assets for 2017 was $375,319 million, and the ending balance of assets for 2016 was $321,686 million. Find and interpret the return on investment ratio.

48,351/((375,319+321,686)/2)=0.1387 or 13.87%

For every $100 in investments in assets, Apple was able to earn $13.87.

Sources

https://www.investopedia.com/terms/r/roaa.asp#:~:text=ROAA%20is%20calculated%20by%20taking,percentage%20of%20total%20average%20assets.

https://www.educba.com/return-on-assets-formula/