Understanding Return on Assets (ROA)
Return on assets (ROA) is a way of measuring a company's profitability by calculating a percentage based on the amount of assets involved in generating profit.Formula
ROA = Net Income / Total AssetsHow do I calculate the return on assets?
When calculating Return on Assets (ROA) it is important to use the formula of Net Income / Total Assets. This ratio, expressed as a percentage, provides an indication of how profitable a company is relative to its total assets. ROA is an especially important metric when comparing companies of different sizes, as it shows the efficiency of the company in generating profits in relation to its total assets. To calculate ROA, both Net Income and Total Assets can be found on a company's income statement and balance sheet, respectively. Additionally, Sourcetable offers tools to make the calculation easier.
What is Return on Assets (ROA)?
Return on Assets (ROA) is a financial ratio that measures the profitability of a company in relation to its total assets. It is calculated by dividing a company's net income by its average assets and is expressed as a percentage.
What does a high Return on Assets (ROA) indicate?
A high Return on Assets (ROA) indicates that a company is efficiently using its assets to generate profits. A high ROA indicates that a company is well managed and is generating a healthy return on its investments.
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Key Points
How do I calculate return on assets?
ROA = Net Income / Total Assets
Measures Profitability
Return on assets measures how efficiently a company's management is earning profits from its economic resources.
Calculated as a Percentage
The return on assets is calculated as a percentage, representing the ratio of profits divided by total assets.
Low ROA, High Assets
Companies with a low ROA usually have more assets that generate profit. This means that they have more assets that are generating higher returns.
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