Return on Assets (ROA)

What is Return on Assets (ROA)

Return on assets (ROA) is a financial ratio that measures the profitability of a company's assets. It is calculated by dividing the company's net income by its total assets and expressing the result as a percentage.

Net income is a company's profit from its normal business operations, after deducting operating expenses and taxes. Total assets are the sum of all the company's assets, including both current assets (such as cash and inventory) and non-current assets (such as property, plant, and equipment).

ROA is used to evaluate the efficiency and effectiveness of a company's use of its assets to generate profits. A high ROA indicates that the company is generating a good return on its assets, while a low ROA may indicate that the company's assets are not being used effectively.

ROA can be a useful metric for comparing the performance of different companies within the same industry, as it allows investors to see which companies are generating the highest returns on their assets. It can also be useful for comparing the performance of a company over time, as it shows whether the company is becoming more or less efficient at generating profits from its assets.

See Also