Mars's Secret Financial Metric: Should Your Business Track Return on Total Assets?

Discover the billion-dollar secret behind Mars's success and whether this financial metric could transform your business growth strategy

The Multi-Billion Dollar Question: What's Mars's Secret Weapon?

When most people think of Mars, they picture chocolate bars and candy. But here's a surprising fact: this confectionery giant actually makes more money from pet food than chocolate these days. Even more intriguing is the financial metric that reportedly drives their entire business strategy - Return on Total Assets (ROTA).

Recent insights from the acclaimed Acquired podcast revealed that Mars has used ROTA as their primary financial compass for decades. But before you rush to implement this metric in your own business, let's dive deep into what it really means and whether it's the right fit for your business growth strategy.

What Exactly is Return on Total Assets (ROTA)?

Return on Total Assets is designed to measure how effectively a company utilises its assets to generate profit. The calculation is straightforward:

ROTA = Profit ÷ Total Assets

Your finance director or finance manager would typically use EBIT (Earnings Before Interest and Tax) for the profit figure, though some prefer net profit. The total assets include everything from physical equipment and machinery to cash in the bank, stock, and outstanding customer invoices - essentially combining both current and long-term assets.

Why This Metric Can Be Misleading for Most Businesses

While ROTA sounds impressive in theory, there's a fundamental problem that every proactive accountant should highlight: it can vary dramatically based on accounting policies rather than actual business performance.

Consider this airline example: A company purchases an aircraft for £25 million, planning to use it for 25 years. They depreciate £1 million annually through their profit & loss statement. After 25 years, the plane is fully depreciated on paper (zero book value), but it still has significant market value.

Suddenly, their ROTA calculation shows infinite returns because they're dividing profit by zero assets - despite nothing actually changing in their business operations. This accounting quirk makes ROTA particularly unreliable for asset-heavy industries.

The Hidden Dangers of Focusing on Just One Metric

Here's where many businesses go wrong: they fixate on a single financial metric without considering the broader picture. Every experienced accountant knows the golden rule - never rely on one metric alone.

Using our earlier sales example: if you tell your team to "sell more" without additional parameters, they might slash prices to increase volume, destroying your margins and potentially drive profit into negative territory. Similarly, if leadership becomes obsessed with improving ROTA, they might avoid necessary capital investments, leading to outdated equipment and competitive disadvantage over time.

The solution? Always use what we call the "triangle of three" - your main metric supported by two complementary measures that prevent dysfunctional behaviour.

Better Alternatives for Growing Businesses

For most businesses turning over up to £5 million, complex financial ratios like ROTA have limited practical value. Every year can be vastly different, and changes are often driven by owner decisions rather than operational efficiency.

However, there's one metric that stands out for smaller businesses: Return on Invested Capital (ROIC).

ROIC is powerful because it doesn't matter how you're funding your business - whether through bootstrap funding, director's loans, or external finance. It simply asks: "For every pound of capital available to your business, what return are you generating?"

This metric is particularly valuable because it:

• Works regardless of your funding structure

• Tracks performance as percentages, making growth comparisons easier

• Focuses on capital efficiency across all funding sources

• Helps optimise cash flow management

  
  

The Critical Role of Specialised Financial Expertise

This brings us to a crucial point that many business owners overlook. While most accountant practices excel at year-end accounts and tax returns (which represent about 90% of their daily work), strategic financial analysis requires specialised expertise.

Creating effective management accounts and developing meaningful financial metrics isn't a cookie-cutter process. It requires a professional who specialises in management accounting, financial reporting, and strategic analysis - just like tax advisory or medical specialisation.

The reality is that businesses in the top 10% (those making over £250k profit) need specialised support. The 80/20 rule applies here: mass-market, cookie-cutter financial advice won't serve businesses in this elite category.

Key Takeaways for Business Owners

1. No Single Metric is Perfect: Every financial ratio can be manipulated and may not tell the complete story of your business performance.

2. Context Matters: What works for a multi-billion-dollar corporation like Mars may not be suitable for your growing business.

3. Invest in Specialised Expertise: Working with a finance manager or accountant who specializes in strategic financial analysis can unlock far more value than focusing solely on tax optimization.

4. Balance Long-term and Short-term Thinking: Don't let short-term metric optimisation harm long-term business health and competitiveness.

5. Customise Your Approach: Your financial reporting and metrics should be bespoke to your business model, industry, and growth stage.

   
   

The Bottom Line: Focus on What Drives Real Growth

While Mars's success with ROTA makes for an interesting case study, the real lesson isn't about copying their specific metric. It's about the importance of having sophisticated financial analysis tailored to your business.

Rather than spending disproportionate time with your tax accountant trying to save another £10,000, consider investing in strategic financial expertise that could help you generate an additional £500,000 in profit. When you're making significantly more money, tax optimisation becomes a much smaller concern.

The most successful businesses understand that effective management accounts, strategic cash flow planning, and meaningful profit & loss analysis require specialised knowledge. They work with professionals who can create bespoke financial reporting that actually drives decision-making and business growth.

Don't get caught up in the latest financial ratio trend. Instead, focus on building a comprehensive financial framework that supports your specific business objectives and growth ambitions.

Ready to transform your business's financial strategy? Contact our team of specialist management accountants who can help you develop the right metrics and reporting framework for your unique business needs.