Return on Assets (ROA)

Return on Assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profit. It is calculated by dividing net income by total assets. ROA indicates how well a company is using its resources to generate earnings, with a higher ROA suggesting better management of assets. This ratio is particularly useful for comparing the performance of companies in capital-intensive industries, where efficient use of assets is critical to profitability.

Example

A company with a net income of $2 million and total assets of $20 million has a ROA of 10%, indicating that it generates $0.10 of profit for every dollar of assets.