Return on assets


Return on assets

The Return on Assets (ROA) percentage shows how profitable a company's assets are in generating revenue.

ROA can be computed as:

:mathrm{ROA} = frac{mbox{Net Income{mbox{Total Assets

This number tells you "what the company can do with what it's got", i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets. [ [http://www.college-cram.com/study/finance/presentations/107 Professor Cram. "Ratios of Profitability: Return on Assets" College-Cram.com. 14 May 2008 ] ]

Usage

Return on assets is an indicator of how profitable a company is before leverage, and is compared with companies in the same industry. Since the figure for total assets of the company depends on the carrying value of the assets, some caution is required for companies whose carrying value may not correspond to the actual market value. Return on assets is a common figure used for comparing performance of financial institutions (such as banks), because the majority of their assets will have a carrying value that is close to their actual market value. Return on assets is not useful for comparisons between industries because of factors of scale and peculiar capital requirements (such as reserve requirements in the insurance and banking industries).

Return on assets is one of the elements used in financial analysis using the Du Pont Identity.

References

ee also

*Return on capital
* List of business and finance abbreviations

External links

* [http://www.investopedia.com/terms/r/returnonassets.asp Return On Assets - ROA]


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • return on assets — ( ROA) A percentage calculated by dividing net income after tax by total assets. Annual income is usually used in the numerator; however, the annualized income for a month, quarter, or half year can be used. Period end assets is often used in… …   Financial and business terms

  • Return on Assets — Die Artikel Fundamentalanalyse#GKR und Gesamtkapitalrentabilität überschneiden sich thematisch. Hilf mit, die Artikel besser voneinander abzugrenzen oder zu vereinigen. Beteilige dich dazu an der Diskussion über diese Überschneidungen. Bitte… …   Deutsch Wikipedia

  • Return on assets — Le Return on Assets (ou ROA) qui peut être traduit en français par taux de rendement de l actif investi ou rentabilité économique est une notion économique d inspiration anglo saxone. Celle ci mesure en pourcentage le rapport entre le résultat… …   Wikipédia en Français

  • return on assets — Ratio of net income to total assets. See return on equity …   Black's law dictionary

  • return on assets — Accounting. the amount of profit computed by dividing net income before interest and taxes by the cost of assets, usually expressed as a percentage. Abbr.: ROA * * * …   Universalium

  • return on assets — An accounting ratio expressing the amount of profit for an accounting period as a percentage of the assets of a company …   Accounting dictionary

  • return on assets — An accounting ratio expressing the amount of profit for an accounting period as a percentage of the assets of a company …   Big dictionary of business and management

  • return on assets — Accounting. the amount of profit computed by dividing net income before interest and taxes by the cost of assets, usually expressed as a percentage. Abbr.: ROA …   Useful english dictionary

  • Return on assets Du Pont — is a financial ratio that shows how the return on assets depends on both asset turnover and profit margin. The Du Pont method breaks out these two components from the return on assets ratio in order to determine the impact of each on the… …   Wikipedia

  • Return On Assets - ROA — An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company s annual earnings by its total assets, ROA is …   Investment dictionary


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.