Cash Return on Assets Ratio

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Cash Return on Assets Ratio

Cash Return on Assets Ratio =

Cash flow From Operations

Average Total Assets

AKA: Asset Efficiency Ratio

INTERPRETATION

The cash return on assets (cash ROA) ratio measures the operational cash flow against the total assets owned by a business.

Business owners, managers, and others use this cash ROA ratio to evaluate how well a company uses assets to generate operating cash flows. For example, manufacturing and other heavy-asset companies look at cash return on assets to determine whether they are maximizing their assets or not.

Note: expanded calculation

Operating cashflows over a period are divided by the average total assets obtained by summing the value of total assets at the beginning and the end of the period and dividing the result by 2.

The cash return on assets (ROA) ratio is used because using the standard return on assets (ROA) ratio can be misleading when the accrual basis of accounting is used.

EXAMPLE

M&M Company has operating cashflows of $20,000 and $200,000 of total average assets. 

Resulting in a cash ROA of .10 or 10%.

$20,000/ $200,000 = .10 = 10%

BENCHMARK: PG, HA, EB, ROT

There is no set “good” or “bad” value for the cash return on assets ratio. A ratio of 10% might be high in one industry but very low in another.

It’s important to look at the Cash ROA over some time and compare it to other companies in the same industry.

Cash Return on Assets Ratio:

ABBREVIATION KEY:

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

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