Financial return ratios measure the effectiveness of the investment management of the company. These ratios help users to evaluate whether it is possible to generate a higher return on investment. As a general rule, financial return ratios compare the company's net income with the company's tools to generate profit. For this purpose, return ratios divide assets or equity and the net income of the company. The result is shown as a percentage of return from one dollar invested. There are several main financial return ratios – return on capital (ROC) or return on equity (ROE), return on investment (ROI), and return of assets (ROA). Return on capital (ROC) shows the percentage of recovery of the original company's investment. Return on equity (ROE) can be calculated as net income divided by the average equity of shareholders. Return on investment (ROI) shows the percentage of the return per dollar invested. It is calculated as each dollar of return divided by the initial dollar investment. Return on assets (ROA) is a financial return ratio calculated as net income divided by the assets. It shows how much net profit the company generates for each dollar invested in assets. ROA determines the company's leverage and if it is enough to cover the cost of capital with the company's assets.
Return Ratios Excel Template
Assess the return from one dollar invested by your company
Evaluate the strength of the investment by comparing it to industry benchmarks
Assess the company's leverage
Analyze the company's financial performance and effectiveness of the financial management
