Step 6: Return on assets -- picture your resource efficiency as a speedometer

This bottom line is generally best used to provide an annual (or sometimes quarterly) view, giving us a picture of the medium to long-term patterns of overall financial performance. The ratio that gives us ROA is net profit / sales (N/S), answering with a percentage the questions, "How many dollars of profit are we generating with how many dollars of assets? or "What is our return on our total resources employed? ROA is derived by multiplying net profit / sales (return on sales, or ROS) by sales / assets (asset turnover, or AT).

Lou Mobley’s chart shows ROS (shown as a percentage) on the vertical axis and AT on the horizontal axis, with ROA as a curve. The beauty of the chart is its ability to represent all three values in one point for each period, showing clearly the evolution of the dynamic balance between ROS and AT over time. The great possibility is getting everyone aligned around creating the most efficient use and balance of total resources over time. Once a team understands how this relates to cashflow and their budgets, they can become very accurate in intending the actual financial future and resource efficiency they want to create.

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