Return on Assets (ROA) Calculator

Calculate return on assets to measure company efficiency in using assets to generate profits.

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What is Return on Assets (ROA)?

Return on Assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profits.

ROA is calculated by dividing net income by total assets and multiplying by 100 to express it as a percentage. It indicates how much profit a company generates for each dollar of assets it owns.

A higher ROA suggests that a company is more efficient at converting its assets into profits. This metric is particularly useful for comparing companies within the same industry, as asset requirements can vary significantly across different sectors.

ROA is valuable for investors and management as it provides insight into operational efficiency and asset utilization. It helps identify whether a company is making effective use of its resources to create shareholder value.

Return on Assets (ROA) Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income} &= \mathrm{NI}\newline\text{Total Assets} &= \mathrm{TA}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Assets} = \mathrm{ROA} \newline = \frac{\mathrm{NI}}{\mathrm{TA}} \times \mathrm{100{\%}}\end{gather*}

Return on Assets (ROA) Calculation Examples

Example 1

A company reports net income of $120,000 with total assets worth $2,000,000.

Let's calculate the return on assets for this company:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income}\space(\mathrm{NI}) &= \mathrm{{\$}120{,}000}\newline\text{Total Assets}\space(\mathrm{TA}) &= \mathrm{{\$}2{,}000{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Assets}\space(\mathrm{ROA})\newline\begin{aligned}&= \frac{\mathrm{NI}}{\mathrm{TA}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}120{,}000}}{\mathrm{{\$}2{,}000{,}000}} \times \mathrm{100{\%}}\newline&= 0.06 \times \mathrm{100{\%}}\newline&= \mathrm{6{\%}}\end{aligned}\end{gather*}

This indicates that the return on assets for the company is 6%, meaning that it generates 6% in profit for every dollar of assets employed.

Example 2

A retail business has net income of $75,000 and total assets valued at $1,500,000.

Let's calculate the ROA for this retail business:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Net Income}\space(\mathrm{NI}) &= \mathrm{{\$}75{,}000}\newline\text{Total Assets}\space(\mathrm{TA}) &= \mathrm{{\$}1{,}500{,}000}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Return on Assets}\space(\mathrm{ROA})\newline\begin{aligned}&= \frac{\mathrm{NI}}{\mathrm{TA}} \times \mathrm{100{\%}}\newline&= \frac{\mathrm{{\$}75{,}000}}{\mathrm{{\$}1{,}500{,}000}} \times \mathrm{100{\%}}\newline&= 0.05 \times \mathrm{100{\%}}\newline&= \mathrm{5{\%}}\end{aligned}\end{gather*}

This calculation shows that the return on assets for the retail business is 5%, indicating how effectively the company utilizes its assets to generate profits.

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