A century ago, publicly traded companies refused to provide any type of financial information to their shareholders. Nowadays, they engulf shareholders with so much information that they may find it difficult to shovel their way through the piles of data to figure out what a company is worth and what it might be earning.

It always pays to go back to the basic balance sheet and earnings statement numbers, and evaluate the relationships between them. Sometimes, it is difficult to weigh the results or compare potential investment choices.

One ratio that can be a tie-breaker in measuring year-to-year changes or company-to-company comparisons is earnings on operating assets.

Every business needs two essential things in order to conduct operations: a place to do business with the necessary equipment, and a supply of goods to sell or materials to process. These are operating assets, defined here as the sum of net fixed assets (or plant and equipment) plus inventories.

If this definition of operating assets seems too bare bones, there is a slightly broader definition: net fixed assets plus working capital. How much operating profit a company earns on this core investment will indicate a basic level of profit-making ability.

Return on operating assets is one of those old analytical ratios that has been overtaken by analysis of the mass of subsidiary information that businesses report.

You will find it discussed in the foundation volume of Benjamin Graham’s and David Dodd’s book, Security Analysis. A footnote in my copy of the book says: “This is an excellent measure of earnings performance and even preferable to the return on total capital in comparing the performance of two or more companies.

“But it does not lend itself to the derivation of a return on the common-stock equity and thus provide the basis for determining per-share earnings … We recommend its use.”

The results of a random sampling of 15 non-financial companies, from large-cap to small-cap, are set out in the accompanying table to show differences in returns on operating assets. The figures compare those of the 2007 fiscal year with those of five years prior.

The first ratio is operating income as a percentage of average operating assets. Because earnings before interest, taxes, depreciation and amortization has become so popular and so widely used, the table also shows EBITDA as a percentage return on operating assets.

As a measure for comparison of bottom-line results, return on average equity also appears.

Return on operating assets eliminates the influence of financial operations — structuring and restructuring, extraordinary write-offs and charges, interest charges and profits from investments. Return on equity, of course, reflects all those influences.

The figures show, for example, the revival of Bombardier Inc.’s fortunes and the impact of the commodities boom and the corporate expansion of Teck Cominco Ltd.

The figures also show the deterioration of profitability in the food retailing business, particularly Loblaw Cos. Ltd.’s drop in profit.

Meanwhile, Toromont Industries Ltd.’s returns illustrate how a seemingly modest improvement in operating margins can result in the marked gain in return on equity. IE