The return on assets (ROA) shows the percentage of how
profitable
In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs.
It i ...
a company's
asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
s are in generating
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
.
ROA can be computed as below:
:
This number tells you what the company can do with what it has, ''i.e.'' how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Return on assets gives an indication of the
capital intensity
Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, ...
of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets. ROAs over 5% are generally considered good.
Usage
Return on assets is one of the elements used in financial analysis using the
Du Pont Identity
DuPont analysis (also known as the DuPont identity, DuPont equation, DuPont framework, DuPont model or the DuPont method) is an expression which breaks ROE (return on equity) into three parts.
The name comes from the DuPont company that began us ...
.
See also
*
Return on equity
The return on equity (ROE) is a measure of the profitability of a business in relation to the equity. Because shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can also be thought of as a return on '' ...
(ROE)
*
List of business and finance abbreviations
This is a list of abbreviations used in a business of financial context.
0-9
*1H – First half of the year
*24/7 – 24 hours a day, seven days a week
*80/20 – According to the Pareto principle, for many events, roughly 80% of the effects c ...
*
Rate of return on a portfolio The rate of return on a portfolio is the ratio of the net gain or loss (which is the total of net income, foreign currency appreciation and capital gain, whether realized or not) which a portfolio generates, relative to the size of the portfolio. It ...
*
Return on brand The return on brand (ROB) is an indicator used to measure brand management performance. It is an indicator of the effectiveness of brand use in terms of generating net income. In fact, it is a special case of return on assets (ROA).
ROB is calcula ...
(ROB)
*
Return on capital (ROC)
*
Return on investment
Return on investment (ROI) or return on costs (ROC) is a ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably ...
(ROI)
*
Weighted average return on assets The weighted average return on assets, or WARA, is the collective rates of return on the various types of tangible and intangible assets of a company.
The presumption of a WARA is that each class of a company's asset base (such as manufacturing equ ...
(WARA)
References
External links
Return On Assets - ROA
{{Financial ratios
Financial ratios
Investment indicators