How to Improve a Return on Total Assets
Return on assets compares net income to total assets, shedding light on a company's ability to use assets to generate profit. Companies with higher ROA valuations can make more money with less equipment, facilities, inventory, investments and other assets. Return on assets is calculated by dividing net income by total assets. Therefore, improving your return on total assets relies upon either increasing net income or decreasing total assets. Finding ways to increase prices, lower costs, increase sales volume or lower total asset balances as a proportion of sales is the key to improving return on assets.
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Raise your product and service prices temporarily, or in a small market, to test the price increase's impact on demand. Keep the prices at the new level if demand does not drop enough to reduce total revenue, or scale the increase back a bit if it does. Revisit your prices in the future to look for opportunities to increase net income without decreasing demand.
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Boost sales volume through marketing to achieve economies of scale and reduce purchase costs, or renegotiate purchase terms with existing suppliers. Find new suppliers who will offer you better pricing terms with comparable quality standards if you cannot work with your existing suppliers to lower costs.
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Allow certain employees to work from home to reduce company utilities and equipment expenses, or use temporary workers in times of high demand to reduce compensation costs in future low-demand cycles. Buy a large office building and renting unused offices to other businesses to eliminate rent expenses if possible.
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Plan and implement a lean business model. Identify non-vital business functions that your company cannot perform as cost-efficiently as a specialist, and outsource these roles to a third-party service provider. Outsource distribution, for example, to remove expensive vehicles from your total asset balance. Outsource legal functions, as another example, to avoid paying high salaries for highly skilled legal specialists.
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Increase your sales volume without increasing your asset base. Be creative in your sales and marketing practices to reach more customers without wasting money doing things they way large corporations do. Use contextual advertising services online, for example, to ensure that you only pay for relevant advertising impressions. Design web-advertising strategies that encourage social-media sharing, as another example, to leverage free word-of-mouth advertising and the exponential growth capabilities of messaging on the web.
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