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Return on Assets

April 13, 2006

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Return on assets is the ratio of net income to total assets. It is basically a measure of how well your business is using its assets to produce more income. It can be viewed as a combination of two other ratios, net profit margin (ratio of net income to sales) and asset turnover (ratio of sales to total assets):

A high return on assets can be attributable to a high profit margin, a rapid turnover of assets, or a combination of both.

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