Methods & benchmarking
Return on Assets
Return on assets is a profit level indicator that measures operating profit as a percentage of a company's operating assets, commonly used under the transactional net margin method for asset-intensive businesses such as manufacturers. It is favoured when profitability is more closely linked to the assets employed, particularly.
Return on assets is calculated by dividing operating profit by the value of operating assets employed in the business, usually excluding non-operating items such as cash, investments or surplus property that do not contribute directly to the tested activity. This profit level indicator suits capital intensive tested parties.
Selecting return on assets over alternatives like a net cost plus margin or operating margin depends on which financial variable most reliably reflects the value drivers of the tested party's function. Practitioners must carefully define which assets to include, decide whether to use net book value or another valuation basis.
In practice
What matters when applying return on assets
- Measures operating profit as a percentage of operating assets
- Best suited to asset-intensive, capital heavy businesses
- Commonly used with the transactional net margin method
- Requires consistent definition of assets across comparables
- Excludes non-operating items like cash and surplus property
Frequently asked
Common questions
When is return on assets the right profit level indicator?+
Return on assets works best when a tested party's profitability is primarily driven by the assets it employs rather than by sales revenue or operating costs, which is typical of capital intensive manufacturers or asset-heavy service providers.
What assets should be included when calculating return on assets?+
Only operating assets that are actively used to generate the profit being tested should be included, typically fixed assets such as property, plant and equipment, alongside relevant working capital items.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.