What does ROTA mean? What is the full form of ROTA?
The Full Form of ROTA is Return On Total Assets.
Return on total assets (ROTA) is a ratio that measures a company’s earnings before interest and taxes (EBIT) relative to its total net assets. It is defined as the ratio between net income and total average assets, or the amount of financial and operational income a company receives in a financial year as compared to the average of that company’s total assets.
The ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings. EBIT is used instead of net profit to keep the metric focused on operating earnings without the influence of tax or financing differences when compared to similar companies.
KEY TAKEAWAYS
- The return on total assets shows how effectively a company uses its assets to generate earnings.
- The ROTA metric can be used to determine which companies are reporting the most efficient use of their assets as compared with their earnings.
- Some concern exists about ROTA relying on the book value of total assets rather than their market value, giving a return that looks higher than it should be in reality.
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. The ROTA, expressed as a percentage or decimal, provides insight into how much money is generated from each dollar invested into the organization.
This allows the organization to see the relationship between its resources and its income, and it can provide a point of comparison to determine if an organization is using its assets more or less effectively than it had previously. In circumstances where the company earns a new dollar for each dollar invested in it, the ROTA is said to be one, or 100 percent.
ROTA
means
Return On Total Assets
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