San Antonio Business Daily

what are the reasons for a companies return on assets ratio to decrease?

hi, im doing an assignment where i've been given a comparative balance sheet, comparative income statement, and a ratio analysis of a company. i have to talk about the liquidity, profitability, and financial stability of the company by looking at the balance sheet, income statement, and ratio analysis. one of the key ratios to find the performance of the profitability is the return on assets, and in this case it has decreased over three years. so my question is, is there any other ratio that will cause the return on assets to decrease? as in any other ration in any of the balance sheet, income statement, or ratio analysis. thanks

Public Comments

1. a decreasing ROA indicates less profitability. ROA is derived from Net income and assets, so to improve the return on your assets, increase Net Income without acquiring new assets or improve the effectiveness of existing assets. Hence, the items which are causing your ROA to decrease are decreasing net income (p/l) and icnreasing assets such as high purchases of fixed assets or poor collection of accounts receivable.