Return on Assets (ROA)
Candlefocus EditorThe Return on Assets (ROA) ratio shows the net amount a company earns per dollar of assets invested. It is calculated by dividing net income (or profit) by total assets. This ratio is expressed as a percentage and gives investors insight into how efficiently a company is using its assets to generate profits. For example, if a company’s total assets are $100 million, and the company earned $7 million in net income, the return on assets would be 7%.
It is important to compare the Return on Assets to other firms in the same industry. This is because the assets used by different companies can vary greatly, so comparisons need to take into account similar assets in order to make an accurate analysis. ROA also factors in a company’s debt, something Return on Equity (ROE) does not.
Overall, Return on Assets is an important financial indicator that helps investors and other stakeholders to understand how efficiently resources from a company’s assets are being utilized. ROA is an important measure for investors when evaluating a company’s financial health and whether it will be a successful investment opportunity or not. Return on Assets can also be used by management and analysts to best determine whether the company is using its existing resources efficiently in order to generate a profit.