What is the 'Cash Return On Assets Ratio'
The cash return on assets ratio is used to compare a business' performance among other industry members. It is an efficiency ratio that rates actual cash flows to company assets without being affected by income recognition or income measurements. The ratio can be used internally by the company's analysts or by potential and current investors.
BREAKING DOWN 'Cash Return On Assets Ratio'
Fundamental analysts believe a stock can be undervalued or overvalued. That is, fundamental analysts believe indepth analysis can help increase portfolio returns. To do this analysis, fundamental analysts use a variety of tools including ratios. Ratios help analysts compare and contrast data points such as return on assets (ROA) and cash ROA. When these two ratios diverge, it is a sign that cash flow and net income are not aligned, which is a point of concern for analysts.ROA vs. Cash ROA
Return on assets is calculated by dividing net income by average total assets. The answer tells financial analysts how well a company is managing assets. In other words, ROA tells analysts how much each dollar of assets is generating in earnings. A high ratio means the company earns more net income from $1 of assets than the average company, which is a sign of efficiency. A low ratio means a company makes less net income per $1 of assets, which is a sign of inefficiency. The issue is net income is not always aligned with cash flow. As a solution, analysts use cash ROA, which divides cash flows from operations (CFO) by total assets. Cash flow from operations is specifically designed to reconcile the difference between net income and cash flow. In this way, it is a more accurate number to use in the calculation of ROA than net income.
As an example, if company A has a net income of $10 million and total assets of $50 million, ROA is 20%. Company A also has high sales growth due to a new financing program that gives all customers 100% financing. As a result, net income is high, but the increase in net income is due to an increase in credit sales. These credit sales increased sales and net income, but the company has received no cash for the sales. Cash flows from operations, a line item that can be found on the cash flow statement, shows the company has $5 million in credit sales. Cash flows from operations deducts this $5 million in credit sales from net income. As a result, cash ROA is calculated by dividing $5 million by $50 million, which is 10%. In actuality, assets generated a lower amount of "real" cash earnings than originally thought.

Return On Assets  ROA
An indicator of how profitable a company is relative to its total ... 
Cash Flow
The net amount of cash and cashequivalents moving into and out ... 
Net Cash
A company's total cash minus total liabilities when discussing ... 
Operating Cash Flow Ratio
A measure of how well current liabilities are covered by the ... 
Cash Asset Ratio
The current value of marketable securities and cash, divided ... 
Sales To Cash Flow Ratio
A comparison of a company's sales to its cash flow. The sales ...

Personal Finance
Use ROA To Gauge A Company's Profits
Do you rely too heavily on ROE? Consider using return on assets for a more complete picture. 
Investing
Analyze Cash Flow The Easy Way
Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors. 
Investing
Calculating Net Cash
A companyâ€™s net cash is its total cash remaining after it subtracts all liabilities. 
Investing
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Investing
Operating Cash Flow: Better Than Net Income?
Differences between accrual accounting and cash flows show why net income is easier to manipulate. 
Trading
Free Cash Flow Yield: A Fundamental Indicator
Free cash flow can measure a businessâ€™s performance as if youâ€™re looking at its net income line. 
Investing
Cash Flow Statement and Financial Health
A cash flow statement records the amounts of cash and cash equivalents entering and leaving a company. 
Investing
Key Financial Ratios to Analyze Investment Banks
Find out which financial ratios are most useful when analyzing an investment bank, and why tracking capital efficiency is especially important. 
Investing
Cash Flow From Investing
Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it. 
Investing
What Is A Cash Flow Statement?
Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.

What is the formula for calculating return on assets (ROA)?
Learn about the calculation and interpretation of the return on assets formula and how it is used to analyze a company's ... Read Answer >> 
What is the difference between a primary and a secondary market?
Examine the return on assets ratio as it relates to the insurance industry, and learn what the industry average is for return ... Read Answer >> 
What is the difference between operating cash flow and net income?
Learn how net income is an income statement for a certain period of time, while cash flow shows inflows and outflows based ... Read Answer >> 
What are some ratios I can use the operating cash flow ratio with?
Understand the importance of a company's operating cash flow. Learn about some of the financial ratios that use the operating ... Read Answer >> 
What is the difference between the operating the operating cash flow ratio and operating ...
Find out more about the operating cash flow ratio, the operating cash flow margin, how to calculate these ratios and the ... Read Answer >> 
How is cash flow from operating activities calculated?
Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods ... Read Answer >>