What Is Return on Assets (ROA)?

ROA refers to a financial ratio that indicates how profitable a company is in relation to its total assets.

ROA is used to determine how efficiently a company uses its assets to generate a profit. The metric is commonly expressed as a percentage by using a company’s net income and it’s average assets.

A higher ROA means a company is more efficient and productive in generating profits.

Key Takeaways

  • You can calculate a company’s ROA by dividing its net income by its total assets.

​ROA = Total Assets/Net Income

  • It’s always best to compare the ROA of companies within the same industry because they share the same asset base.
  • ROA factors in a company’s debt, while Return on Equity does not.

ROA vs. Return on Equity (ROE)

Both ROA and ROE measure how well a company utilizes resources.

The difference is:

  • ROA factors in how leveraged a company is and how much debt it carries.
  • ROE only measures the return on a company’s equity without considering its liabilities.

How ROA is Used by Investors

ROA can be used to indicate how well a company is increasing profits on each dollar it spends.

A falling ROA can indicate over-investment in assets to produce revenue growth.

What Is Considered a Good ROA?

  • 5% is considered good.
  • Over 20% is excellent.

It’s worth comparing ROAs within the same sector.

  • This is where you can find the Fundamental data on the Trade for Good software

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