Afkastningsgrad is a key figure in accounting analysis that shows how efficiently a company manages to use its total assets to generate profits. It is used to assess the company's overall earning capacity in relation to the resources tied up in the assets.
Formula for rate of return
The rate of return is typically calculated as:
Rate of return = (Operating profit / Average assets) × 100
- Result of primary operations (also called EBIT) is the company's profit before interest and tax.
- Average assets is calculated as the sum of the company's assets at the beginning and end of the period divided by two.
Why is the rate of return important?
The key figure shows how good the company is at creating value with the resources it has available. A high rate of return indicates that the company is using its assets efficiently, while a low rate of return may be a sign of inefficiency or too low earnings in relation to the asset pool.
Practical use
The rate of return is often used by:
- Investors, who want to compare companies across industries.
- Creditors and banks, which will assess whether the company has a healthy earning capacity.
- Management, who can follow the development over time and assess whether the resources are used optimally.
Correlation with other key figures
The rate of return is closely related to other key figures, e.g.:
- Profit margin, which shows how much of the turnover turns into profit.
- Asset turnover rate, which shows how many times the assets are "turned over" through the year's sales.
Combined, these figures can give a more nuanced picture of the company's efficiency and earnings.
Example
A company has an operating profit of DKK 5 million. and average assets of DKK 50 million. DKK
Calculation: (5.000.000 / 50.000.000) × 100 = 10 %
The rate of return is therefore 10%, which means that the company has earned 10 ore for every krone invested in assets.