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Return on Assets: Definition and Meaning
Definition
Return on assets, commonly called ROA, is a profitability measure that compares net income with average total assets.
Why It Matters
ROA can help assess how effectively a company uses its asset base to generate earnings. It can be useful for internal analysis and comparisons, but it should be interpreted in the context of the company’s industry, asset intensity, accounting policies, growth stage, and financing structure.
A capital-intensive contractor may have a different ROA profile than a professional-services business with fewer fixed assets.
Example
A company earns $50,000 of net income on average total assets of $500,000. Its ROA is 10 percent.
Related Terms
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