Operating Income to Wages and Salaries

CALCULATION:

Operating cashflows over the course of a period divided by the average total assets on the balance sheet averaged between the start and end of the period.

INTERPRETATION:

Measures how efficiently a company uses Assets to generate Operating Cashflows. Measures return on assets on “cash” basis. A higher cash return on assets ratio indicates a greater cash return.

EXAMPLE:

M&M Company has operating cashflows of $20,000 and $200,000 of assets on its balance sheet, then the ROA is calculated as 10%.

$20,000/ $200,000 = .10 = 10%

Benchmark: PG, HA

ROT: A too low cash return on assets indicates that the company is not making efficient use of its assets.