Retained Earnings To Total Assets Ratio

The retained earnings to total assets (RE/TA) ratio measures the firm's ability to accumulate earnings using its assets. A higher ratio is preferable because it indicates that the company is able to retain more earnings. It can be calculated as follows:

Formula:
RE/TA = retained earnings / total assets

Example:
CFA Ltd has the following information:
Retained profits $600,000
Freehold buildings $350,000
Motor vehicles $100,000
Furniture and fittings $50,000
Stocks $200,000
Trade debtors $60,000
Bank $30,000
Cash $10,000

Then,
Fixed assets = Freehold buildings + Motor vehicles + Furniture and fittings = 350,000 + 100,000 + 50,000 = $500,000
Current assets = Stocks + Trade debtors + Bank + Cash = 200,000 + 60,000 + 30,000 + 10,000 = $300,000
Total assets = Fixed assets + Current assets = 500,000 + 300,000 = $800,000
RE/TA = 600,000 / 800,000 = 0.75 = 75%

* Next: Sales to Total Assets Ratio Analysis