Basic Overview of the Concept of Return On Assets and Depreciation

Calculations are fun to do if you understand the core concepts of the topic. In the diverse field of business marketing and generation of profits, the organizations that deal with the buying and selling of products I order to generate income require some effective methods to make their calculations easy. While dealing with retail prices and profit values out of the sale, many professionals use the most accessible formula to calculate the return of assets.

What is the return of assets?

An indication that describes the progress of the market in terms of profit generated relative to the total assets that the company owns. In simple words, we can say that income generated by subtracting the expenditure is known as the return of assets of a company. Usually, we use the return of assets when we have to make a comparison between different companies.

The term is used by many professionals to get an idea about their generated income and position at which they are standing in a market. Equity of shareholders added to total liabilities is equal to the total assets.

How the return of assets (ROA) is calculated?

In order to calculate ROA, we use the simplest formula in which the net income of the company is divided by the total assets that the company owns.We can also find the roa value with the online roa calculator .

Formula to calculate the return of assets:

Net income/Total assets

EXAMPLE:

Let’s suppose, a company of electronic supplies own a total asset of $100,000 and the net income they calculated for a month is $35000, so, in order to calculate ROA of a company we put the values in the formula described above.

According to formul

—$35000/$100000=0.35$

is the return of assets.

What is depreciation?

The accounting method through which a company can write off its value of total assets over some specific period of time is said to be depreciation. Depreciation is the simplest technique used by accountants of the company to evaluate the extent up to which the company’s asset has been used. The technique allows companies to generate revenue by showing only a portion of the asset utilized every year. Moreover, it is an essential factor to take into consideration while running a company or else it will result in loss and unbalanced calculation.

Basically, there are five different methods to find depreciation:

Straight line method, units of production, declining balance, double declining balance and sum of the year’s digits.

Formula to calculate depreciation

In the first step, retrieving the value of the asset is subtracted from its total cost and amount is divided by the total number of years (useful lifespan of assets).

In the next step, we find monthly assets depreciation. In order to find it, we divide the value by 12.

The most common method of depreciation used by many accountants is ‘straight line depreciation method’. We calculate the equal expense of depreciation every year throughout the complete useful life of asset until depreciation of the entire asset occurs. Declining balance method and the double-declining balance method are both accelerated depreciation methods.

Reasons to use depreciation and ROA:

As the field of business is spread throughout the world and many professional companies are playing with numbers on large scales. In addition to this, Other companies or industries that deal with the generation of revenue and calculate them on a monthly basis utilize the methods of ROA and depreciation to maintain their digital record of calculations.

Depreciation is helpful for calculating the profit generated over time, keeping in view the total life span of assets. Neglecting depreciation, while dealing with large amounts results in undesirable results related to income.

Return of assets, on the other hand, is useful to keep records of the total profit that is generated by the company. Furthermore, the competitive standing of a company can also be evaluated by using the formula. This method is quick and simple, and yields result in no time.

Depreciation calculator are also useful for calculating the depreciation values, and it is widely used by accountants to make their calculations more fun and quicker. These were some of the core concepts of ROA and Depreciation along with their uses and formulas to make your understanding about the topic more clear and concise.