Return on Assets
Definition
Net profit / Average total assets for the year (in %)
Calculation Rules
ROA = Net income after preferred dividends/ [Total assets n-1 + Total assets n] / 2
ROA measures the amount earned on each unit of assets invested, combining the effect of profit margin and asset turnover. ROA can also be viewed as the Return On Equity with a zero debt capital structure.
The best way to look at this ratio is to couple it with the net profit margin and the interest rate on financial debt. For example, a high ROA coupled with a high net profit margin, implies that asset resources are used quite successfully. If the ROA is 15% and the interest rate paid on debt is 10%, the business' profit is 5 percent more than its paid interest.
The best way to look at this ratio is to couple it with the net profit margin and the interest rate on financial debt. For example, a high ROA coupled with a high net profit margin, implies that asset resources are used quite successfully. If the ROA is 15% and the interest rate paid on debt is 10%, the business' profit is 5 percent more than its paid interest.