Return to Total Assets Ratio
The selected ratio is the return to total assets ratio. This ratio indicates a company’s profitability relative to its total assets (Zelman et al., 2020). A company’s management, analysts, and investors rely on this ratio to determine how efficiently a company’s assets are managed to bring about desirable returns. The ratio is a percentage using a company’s net income and total assets.
Return to Total Assets Ratio (ROA) Example-Walmart
ROA = Net income/Average Total Assets
Latest 12-month net income = $14.015 B
Average Assets over the past 12 months = $242.9B
14.015/242.9*100
= 5.8%
Ratio Interpretation
The higher the ROA of a company, the more efficiently a company is managed. Typically, a company with an ROA exceeding 5% is considered efficient. Walmart’s most recent ROA is 5.8%, meaning the company is running efficiently. It is worth noting that ROA is a comparative ratio that ought to be compared against other industry participants.
Metrics Similar to ROA in the Efficiency Category
Return on Equity
In owner’s equity, the return on equity (ROE) is used to measure the rate of return for each dollar (Zelman et al., 2020). However, in non-profit organizations like public health facilities, ROE measures the return on each dollar of net assets. Just like ROA, ROE also measures a company’s efficiency.
Return on Invested Capital
The return on invested capital (ROIC) measures the percentage of a company’s profitability earned through debt and equity-funded capital. The ratio measures how efficiently the capital of a company is utilized. It is a crucial key performance indicator (KPI) for interested investors. Apart from assessing a company’s profitability, ROIC can be used to compare peer companies. A company’s management can also use the ratio to allocate capital efficiently.
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References
Zelman, W. N., Mccue, M. J., Glick, N. D., & Thomas, M. S. (2020). Financial management of health care organizations: an introduction to fundamental tools, concepts, and applications (5th ed.). Jossey-Bass.
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Question 
Return to Total Assets Ratio
Respond to the following in a minimum of 175 words:
What is the ratio you chose? Return to Total Assets ratio.
What were the results of your calculation? Show your work to the class, including your formula, the data you input for your calculation, and the company name in your response.
What might you infer about the company’s financial performance related to this ratio?
Which other ratios might you find helpful to confirm what your original ratio calculation told you?
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