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BI & Analytics » Profitability and Return » Net Income and Return on Assets

Relationship between Net Income and Return on Assets

How are net income ratio or net profit ratio (i.e. percentage of net income to total income) and return on total assets related and how can we determine one from the other? Total assets turnover ratio, which is total Income divided by total assets establishes the relationship between the two.


Return on Total Assets = Net Income Ratio * Total Assets Turnover


In other words, Assets Turnover plays as much role as does Net Income ratio in improving the return on assets.


Below is graphical visualization of the above three important measures.


The ratios, analyses pertaining to Net Income Ratio or Net Profit Ratio, Return on Total Assets and Total Assets Turnover ratio represented in the below chart are based on information drawn from financials (e.g. financial statements comprising balance sheet, income statement or profit & loss account) of listed companies across the globe.