Return On Total Assets - ROTA


DEFINITION of 'Return On Total Assets - ROTA'

A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.

To calculate ROTA:

Return On Total Assets (ROTA)


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BREAKING DOWN 'Return On Total Assets - ROTA'

The greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets.

To calculate ROTA, you must obtain the net income figure from a company's income statement, and then add back interest and/or taxes that were paid during the year. The resulting number will reveal the company's EBIT. The EBIT number should then be divided by the company's total net assets (total assets less depreciation and any allowances for bad debts) to reveal the earnings that company has generated for each dollar of assets on its books.

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  1. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  2. What are the main benefits of a JIT (just in time) production strategy?

    The chief benefit of the just-in-time production (JIT) strategy is that it allows businesses to ensure that there is always ... Read Full Answer >>
  3. How can a company increase its return on total assets?

    Return on total assets (ROTA) is a financial metric used in corporate finance to assess how effectively a business is utilizing ... Read Full Answer >>
  4. What are some of the limitations of looking only at the return on total assets?

    One common way to measure the effectiveness of a company's business model is to compare its profits to its assets. The purpose ... Read Full Answer >>
  5. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>

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