Calculation

Return on total assets is calculated by dividing net income by total assets. You can find net income on the income statement and total assets on the balance sheet. As an example, a company with $200,000 in net income and $1 million in assets has a return on total assets of 0.2, or 20 percent: $200,000 divided by $1 million equals 0.2, or 20 percent.

Total Assets Variation

Because the balance sheet only reports assets at the end of the reporting period, use average total assets in the denominator of the return on total assets calculation to get a better representation of a companys use of assets throughout the period. The average total assets are equal to total assets from the current period plus total assets from the prior period divided by two. A company with $1 million in assets in the current period and $600,000 in assets in the prior period has $800,000 in average total assets.

Interpretation

References

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