Definition, Explanation and Use of Return on Asset Ratio:
The return on assets percentage determines the performance of business’ assets in terms of profitability. This ratio signifies “what the business is doing with, what it has got”, i.e., how many dollars of operating profit business is generating for each dollar of asset, it owns. The ratio varies widely across different sectors of economy. Capital intensive industries like oil refineries, railways or airlines etc., usually yield a low return on assets compared to other businesses.
In addition, these businesses pay a lot for the maintenance cost of these assets which reduce the ratio even more. Shoestring businesses like software firms, online stores etc., will have a high return on assets as their required assets are minimal.