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There two item we need to compared1- cash flow in investment activity2- ratio for return to assets
Return on Assets = Net Income/Total Assets.
Cash Flow From Investment Activities = Cash changes resulting from1) gains and losses on investments2) Sale or purchase of assets
Therefore, ROA gets affected from Cash Flow from investment activities in2 ways:
1) Numerator: Net Income changes if the firm makes a gain or a loss on any investments
2) Denominator: Total Assets change if the firm buys or disposes of any assets
It is the cash flows that include the sale and purchase of long-term assets, and requires analysis of the elements identified in the budget along with the assets that have not been analyzed when determining cash flows from operating activities
Example
*-Cash receipts from the sale of fixed assets or investments.
Return on Assets ratio = Net Income/Total Assets.
*- If the cash flow of investment activities is " in " , This means sale of fixed assets and therefore higher income and increase the percentage rate of return on asset
*- If the cash flow of investment activities is " out" means buying assets, leading to a lower of return on assets ratio
thanks
Cash generated from investment activities can be in the form of rental income which may not be in line with the main business. However Return on assets ratio is concerned with income generated by using assets purchased for business purpose
good answer by Muhammad Fahad Chughtai
agreed with FAHAD answer
If you will just focus on the words Cashflows from an investiment and Return on Assets you will come to know that both are focusing on Income and Assets.
cash flow contain three parts 1- operation 2- finance 3- investment
assets apart of investment
roi = net income / net assets
Both are directly proportional to each other. If one affected the other will also affect both the aspects.
Agreed with the Answer given by Mr. Fahad. Cash flow could be due to Sale or Purchase transactions &
I endorse answer by Muhammad Fahad Chughtai
ROA gets affected from Cash Flow from investment activities in2 ways:
1) Numerator: Net Income changes if the firm makes a gain or a loss on any investments
2) Denominator: Total Assets change if the firm buys or disposes of any assets
Cash flow from investing activities includes inflow like proceeds from sale of asset, dividend received from investment in equity shares etc and outflow like investment in fixed assets and investment in equity and debentures.
Return on asset means profit made from the resources invested.
ROA = Net Income
. Average total assets
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