QualityD/E#39
Return on Tangible Assets measures how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
Total Debt / Shareholders' Equity
Description
Measures financial leverage by comparing total borrowings to shareholder equity. High leverage amplifies both gains and losses and increases bankruptcy risk during economic downturns. Benjamin Graham was famously cautious about leverage, preferring companies with conservative balance sheets.
Interpretation
Below 0.5 is conservative, 0.5-1.0 is moderate, above 2.0 is aggressive. Industry context is critical. Utilities and real estate can sustain higher leverage than technology firms. Watch for rising D/E trends as an early warning sign.
Related metrics: Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Return on Tangible Assets- Primary source filings used to calculate Return on Tangible Assets.
FAQ
How is Return on Tangible Assets calculated?+
Return on Tangible Assets uses the formula: Total Debt / Shareholders' Equity. Buffett's compounder filter: ROTA above 12%. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K + 10-Q filings (segment-level disclosures).
What is a good Return on Tangible Assets value by sector?+
There is no single 'good' value for Return on Tangible Assets — context is sector-driven. Buffett's compounder filter: ROTA above 12%. The /screener exposes sector-relative percentiles for Return on Tangible Assets on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Return on Tangible Assets?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Return on Tangible Assets as a key input to to find compounders with durable economic moats. The academic anchor is Greenblatt (2005) Magic Formula and Mauboussin (2014). ValueMarkers weights this within the Quality pillar of the VMCI score (30% of total).
What are the limitations of Return on Tangible Assets?+
Return on Tangible Assets can mislead in asset-light businesses where conventional capital ratios mislead. Pair Return on Tangible Assets with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Return on Tangible Assets data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Return on Tangible Assets data, sector percentiles, and the VMCI composite score that integrates Return on Tangible Assets with 119 other indicators across 100,000+ stocks. The free /screener exposes Return on Tangible Assets as a filterable column.
Related Quality Indicators
Return on Equity (ROE)Op Margin
Return on Equity measures how efficiently a company converts capital into earnings.
Return on Assets (ROA)Net Margin
Return on Assets is the metric used to how efficiently a company converts capital into earnings.
Return on Invested Capital (ROIC)EBITDA Margin
Return on Invested Capital measures how efficiently a company converts capital into earnings.
Return on Capital Employed (ROCE)FCF Margin
Return on Capital Employed is the metric used to how efficiently a company converts capital into earnings.
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