Video Transcript: Rate of Return on Operating Assets

Hello and welcome back, and now we're going to discuss the rate of return on  your operating assets. Analyzing the ratios of income statements and balance  sheet items from one year to the next can reveal important trends. Management  uses these ratios to measure performance by establishing targets and  evaluating results. Analysts use these figures to calculate the ratios and to  explain the importance of this information to management and investors to  determine the rate of return on operating assets for Dement and Perry, for 2009  and 2010 use the following formula to to determine the rate of return on your  operating assets. You're going to divide your net operating income divided by  the operating assets. So for 2009 for Dement and Perry, they had, excuse me,  I'm sorry, an eight point 13% return, rate of return on their operating asset and  2010 a 10.29% net operating income is also called Net Operating earnings or  income, before interest and taxes. In calculating Dement and Perry's ratio, we  have assumed that all assets are operating assets used in producing operating  revenues. This ratio measures the profitability of the company in carrying out its  primary business function for Dement and Perry, these figures indicate a slight  increase in the earning power of the company in 2010 net operating income  increased More than proportionately compared to the increase in operating  assets, perhaps this performance justifies the increase in operating assets.