ROA (Return on Assets)
Measures how efficiently a company uses its asset base to produce profit.
Formula
ROA = Net Income / Average Total Assets x 100%
Worked example$1.2 billion of net income divided by $20 billion of average assets gives ROA of 6%.
Calculation steps
- Find net income: $1.2 billion.
- Average beginning and ending assets to get $20 billion.
- Divide and multiply by 100 to get 6%.
How to interpret it
A higher ROA generally indicates more profit generated per unit of assets.
Industry context
ROA is especially useful for banks, manufacturers, and other asset-intensive businesses, but expected levels vary by industry.
Common mistakes
- Use average assets when possible.
- Do not compare asset-light and asset-heavy models directly.
- Consider write-downs that may shrink the asset base.