Return on Assets (ROA)
Net income as a percentage of total assets, measuring how efficiently assets are used to generate profit
What is Return on Assets (ROA)?
Return on assets shows how much profit a business earns for each unit of assets it owns. It measures how efficiently the assets are used to generate profit.
It is useful for comparing businesses in the same industry, especially where assets are a big part of the business.
How this KPI is measured
- Function
- Finance
- Sub-function
- Financial Reporting
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- %
- Measurement frequency
- Quarterly / Annual
- Formula
- (Net income / Average total assets) × 100
How to calculate it
Divide net income by average total assets, and multiply by 100.
For example, if net income is 3,000,000 and average total assets are 50,000,000, ROA is 6%.
Use the average of opening and closing assets. Compare with similar businesses, since asset-heavy industries naturally have lower ROA.
Where it is used
Judging asset efficiency
See how well assets earn.
Comparing peers
Benchmark within an industry.
Guiding investment
Decide where to deploy assets.
How to improve it
Tips and common mistakes
- Compare only within similar industries.
- Older assets carrying low book values can inflate ROA.
- Use with ROE and ROIC.
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