## Sales to Assets Ratio

This ratio demonstrates how well the business is efficiently deploying assets of the business and using them to generate sales.

Your Sales to Assets Ratio Is:

The bigger the ratio the better.

Think about this ratio in terms of dollars - e.g. the amount of sales in dollars earned for the dollar value of asset the business has to generate these sales.

Example: A ratio of 2.5 shows that the business is generating \$2.50 in sales for each (\$1) dollar of total assets.

A low ratio demonstrates the business's sales volume is not as high as the volume of assets in the business should be generating.

## Return On Assets Ratio (ROA)

This ratio demonstrates how efficiently the business is utilizing and deploying business assets to generate profits (not sales but overall operating profits).

If you've calculated the Sales to Assets Ratio above,
Your total assets will automatically appear here
Your Return on Assets Ratio Is:
%

Shows the percentage of profits earned for each dollar of assets in the business.

Example: A ratio of 25% would show the business is earning \$0.25 in pretax or operating profit for each \$1 of assets in the business.

Management's main task in any business is to employ all the assets in the business in the most efficient manner to generate the greatest profits. The bigger this ratio, the better for the business.

## Return On Equity Ratio (ROE)

This ratio demonstrates how efficiently the business is utilizing and deploying the equity, either invested in the business or generated by the business, to generate profits.

•
Your Pretax Profit will automatically appear here

Your Return on Equity Ratio Is:
%

Shows the percentage of profits earned for each dollar of equity in the business. This is essentially the return for the money and time business owners and their investors have invested in the business.

Example: A ratio of 15% would show the business is earning \$0.15 in pretax or operating profit for each \$1 of equity employed in the business.

This ratio should be compared to similar business or to averages in the industry. Further, this ratio should be calculated over time to see which way, if any, it is trending. The higher the better.

## Ways to Improve

Sales to Assets Ratio: Two ways to improve this ratio. 1) Better deploy the assets in the business to generate more sales. 2) If increasing sales is not possible, reduce the volume of assets to the bare minimum or the business will be carrying assets that it is not using properly or adequately (another unnecessary expense).
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Return on Assets Ratio: Following the Sales to Asset Ratio above, the business should either increase sales (keeping all other expenses constant) or reduce or sell off any under performing assets. Additionally, the business could also seek to reduce any and all expenses to their bare minimum – to include reducing variable costs (cost of goods sold) or fixed costs (overhead or operating expenses).
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Return on Equity Ratio: A low ratio demonstrates the business is not utilizing the equity in the business to its fullest. Improving this ratio, can consist of increasing sales (keeping all else the same), reducing all expenses (where possible) or reducing the amount of equity invested in the business. The goal is to get the most return on any investment injected into the business as this injection is usually the most expenses (most give up a portion of the business to investors of outside equity – or if owner’s equity, it could have been deployed in other investments earning larger returns). To that note, this ratio should also be compared to other similar risk investments to determine if the return on the equity placed in the business is being utilized properly. Example, if similar investment are generating 30% in returns and your business is only generating 20% in returns, these funds (equity) would be better off in the other investment – unless the business can start generating 30% or better returns.
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Other financial ratio calculations you may want to evaluate:

Disclaimer: These ratios are for education purposes only and are in no way an adequate substitute for a professional financial advisor.

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