The rate of return on assets characterizes the effectiveness of the use of fixed assets of the organization in production processes. Some people think that this value is used only in textbooks, and they will be wrong. The fact is that capital productivity shows the economic efficiency of the enterprise and the feasibility of using various methods of production or fixed assets.
Instructions
Step 1
Determine what kind of formula for return on assets you will use in the calculations and analysis of financial performance. The main formula, which corresponds to the initial concept of return on assets, is the ratio of the manufactured commodity output to the initial value of fixed assets. This formula allows you to find out the profitability of the output in relation to the invested funds.
Step 2
If it is necessary to take into account the change in the state of fixed assets, then the arithmetic mean between the values of fixed assets at the beginning of the period and at its end is used in the denominator. To determine the return on assets on an annual basis, the formula for the ratio of annual output to the average annual value of fixed assets is used.
Step 3
Please note that the final value of capital productivity is influenced by such factors as a change in the ratio between production and non-production fixed assets, planned modernization and overhaul of equipment, a change in the structure of technological equipment, a change in the volume of production due to the influence of market and other factors, a change in production load due to the replacement of the product range.
Step 4
Analyze the activities of the enterprise using the rate of return on assets and its comparison with previous periods. If its value has changed, then analyze such factors as the structure and share of production fixed assets, as well as downtime and equipment productivity.
Step 5
Increase the rate of return on assets if it indicates a negative state of the company's finances. For this it is necessary to change the structure or increase the share of fixed assets; replace outdated and low-performance equipment; increase shifts and eliminate downtime; sell unused equipment; increase labor productivity and other points related to production processes.
