04C. Profitability KPIs: Return on Assets

Episode 4 of Building Your Multi-Million Dollar Practice is all about understanding KPIs that measure Profitability and how they impact your clients and your advisory services. There are 7 separate profitability KPIs , but in this episode we’re going to go over three, with more to come next time. This means that we can discuss each metric in depth. This KPI can be more industry specific. If the business you are working with has a high cost of equipment and there is a lot of it, like a manufacturing business, there is a certain cost of the asset. Now something to be aware of, if the company is mature and the assets, like the manufacturing equipment, have fully depreciated, then the ratio will look very high. Also remember a business that does not have a lot of assets, like a services based business, the return on the assets would look larger.  The key to using this KPI is looking at the balance sheet and the general framework of the industry sector your client is in.   The Formula: (Net Income / Total Assets)