Return on Assets

The Return on Assets (ROA) or Return on Total Assets is a financial ratio that provides information about a company’s profitability in relation to the book value of a company’s total assets (total liabilities + shareholder’s equity). It therefore measures how efficiently a company uses its assets to generate earnings. ROA is especially used for comparing the performance of companies in the same industry. The ROA equation is: Net income divided by total (book value of) assets. The higher the ROA, the better, since the company is able to earn more money on less investment. An ROA over 5% is generally considered good. The ROA should always be significantly lower than the Return on Equity ratio.

\mathrm{ROA} = \frac{\mbox{Net Income}}{\mbox{Average Total Assets}}

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