How to Calculate Return on Net Assets
A return on net assets is a financial ratio used by investors to determine how capital-intensive a company is. Capital-intensive companies must have a significant amount of money tied up in assets such as machinery in order to produce their goods. Having a higher return on net assets means a company is generating more profit with fewer dollars tied up in capital. To calculate the return on net assets, you need to know the company's after-tax profit, the working capital and the fixed assets of the company.
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Instructions
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Look in the company's annual report to find the company's after-tax profit, the value of the company's fixed assets and the working capital, including cash the company keeps on hand.
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Add the value of the company's fixed assets to the working capital of the company. For example, if the company had $8 million in fixed assets and $2 million in working capital, you would get a total of $10 million.
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Divide the net income by the sum of the working capital and fixed assets to calculate the return on net assets, expressed as a decimal. Continuing the example, if the company had a net income of $800,000, you would divide 800,000 by 10 million to get 0.08.
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Multiply the return on net assets, expressed as a decimal, by 100 to convert it to a percentage. Finishing the example, you would multiply 0.08 by 100 to find a return on net assets of 8 percent.
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References
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