Chapter 11, Problem 17RQ

To determine

Return on total Assets:

It is a measure to evaluate the efficiency of company’s assets. It reports the profit earned as the percentage of total assets used in the business. A company’s rate of return on total assets reflects its ability to optimize the use of total assets.

The formula to compute return on asset:

$\text{Return on Assets}=\frac{\text{Net Income}}{\text{Average Total Assets}}$

Cash return on assets:

It refers to the rate of cash generated from the investments in assets of company. It is relationship between the cash flows from operating activities and average total assets.

The formula to compute cash return on assets:

$\text{Cash return on assets = }\frac{\text{Cash flows from operating activities}}{\text{Average total assets}}$

To explain: The difference between the calculation of return on assets and cash return on assets, and discuss the advantages of cash based ratios.