Return on Assets (ROA)
What It Is:
Return on assets measures the amount of profit the company generates as a percentage of the value of its total assets.
How It Works/Example:
A company's return on assets (ROA) is calculated as the ratio of its net income in a given period to the total value of its assets. For instance, if a company has $10,000 in total assets and generates $2,000 in net income, its ROA would be $2,000 / $10,000 = 0.2 or 20%.
Why It Matters:
The profit percentage of assets varies by industry. For this reason it is often more effective to compare a company's ROA to that of other companies in the same industry or against its own ROA figures from previous periods. Investors and analysts should bear in mind that the ROA does not account for outstanding liabilities and may indicate a higher profit level than actually derived.
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Cached on May 22, 2012, 2:27 pm