Section 6. Cash Flow Ratios
Q33. Cash flow return on assets (Cash flow ROA)
How is the cash flow return on assets calculated?
A33.
Cash flow return on assets (Cash flow ROA) = (A) / (B)
Where,
(A) = Cash flows from operating activities
(B) = Average total assets
[Entity 33-a]
Cash flows from operating activities = $92,000
Beginning total assets = $750,000
Ending total assets = $850,000
Average total assets = $800,000
Cash flow return on assets (Cash flow ROA)
= $92,000 / $800,000 = 11.5%
[Entity 33-b]
Cash flows from operating activities = $84,000
Beginning total assets = $680,000
Ending total assets = $720,000
Average total assets = $700,000
Cash flow return on assets (Cash flow ROA)
= $84,000 / $700,000 = 12.0%
[Note]
Cash flow return on assets (Cash flow ROA) is higher for Entity 33-b than for Entity 33-a.
Thus Entity 33-b is more profitable in generating cash flows from operating activities than Entity 33-a.
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