Retained Earnings to Total Assets

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Retained earnings total asset ratio

Retained earnings tota total asset ratio =

Retained earnings

Total assets

INTERPRETATION

The ratio measures the profitability of the assets and gives the company an idea of how much it relies on debt to fund its total assets.

Note: expanded calculation

Divide retained earnings by total assets

EXAMPLE

M&M Company’s balance sheet shows retained earnings of $135,000 and total assets of $600,000.

Retained earnings total asset ratio = $135,000 / $600,000 = .225

The ratio indicates that retained earnings fund 22.5% of the total assets used for operations, and the rest of 77.5% are financed by share capital and debts. It also shows that for every $1 of assets, a $0.225 accumulated profit has occurred.

BENCHMARK: PG, HA, ROT

A “good” ratio has no exact percentage; it varies by industry.

The ideal ratio for retained earnings to total assets is 1:1 or 100 percent. The company relies 100% on retained earnings to operate and invest. For many businesses, the goal is to have a ratio as close to 100 percent as possible.

A negative ratio indicates potential financial problems. Most new startup businesses retained earnings to assets ratio can be too low or negative in the beginning years, but it does not mean they are in a higher-risk position.

Retained earnings tota total asset ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.