Cash return on assets

Cash return on assets measures the proportional net amount of cash spun off as the result of owning a group of assets. The measure is usually derived in aggregate for an entire business, in which case the calculation is:

Cash flow from operations ÷ Total average assets

In the calculation, the cash flow from assets figure comes from the statement of cash flows. The denominator includes all assets stated on the balance sheet, not just fixed assets. 

The cash return on assets is especially valuable when there is a notable difference between cash flows and reported net income, as can sometimes be the case when the accrual basis of accounting is used. In this situation, calculating the return on total assets can be misleading, so cash flow is used instead of the net income figure.

A high percentage of cash return on assets is especially necessary in an asset-heavy environment (such as any manufacturing industry), where the cash is needed to maintain, update, and invest in additional assets.

The measure is commonly used to compare the performance of businesses within the same industry, since it is very difficult for someone to obfuscate the cash flow figure. Thus, the ratio is quite a reliable and comparable measure of asset performance across an industry.