 Return on assets, which is sometimes called capital turnover, measures how successful a company is in using assets to earn a profit. Return on assets is a measure of profitability. Return on assets is calculated as net income divided by average total assets. Recall that average total assets is beginning total assets plus ending total assets divided by two. Sometimes you might see a question where only ending total assets are given. In that case, just use that number, but realize that in the real world we're able to find two years worth of data. Again, the higher the result, the more efficiently a company is using assets to generate earnings. A better way to calculate return on assets is to take net income plus interest expense and then divide that by the average total assets. This is because a firm's capital structure impacts return on assets. Capital structure is the percentage of debt versus equity. Adding back interest expense lessens the impact of firms that have more debt than others. Again, here's an income statement from our sample company. We'll use the highlighted net income to determine the return on assets. I'm going to ignore interest expense for this example. Here is the balance sheet from our sample company and we'll use the highlighted total assets to determine average total assets. For 2016, net income divided by average total assets gives us a return on assets of 45.9%. The result of this ratio varies significantly by industry, but often 10% or greater is considered good. This result is much more comparable within its own industry.