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Return on Assets (ROA)

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Return on Assets (ROA)

Return on Assets (ROA) is a financial ratio that measures the profitability of a company in relation to its total assets. It is calculated by dividing the company’s net income by its total assets. ROA is a key indicator of how well a company is using its assets to generate profits. It is also a useful tool for comparing the performance of different companies in the same industry.

History of Return on Assets

Return on Assets has been used as a measure of profitability since the early 20th century. It was first developed by the American economist Irving Fisher in his book The Theory of Interest (1930). Since then, it has become a widely accepted measure of profitability and is used by investors, analysts, and financial institutions to evaluate the performance of companies.

ROA is a useful tool for comparing the performance of different companies in the same industry. It can be used to compare the profitability of companies with different asset bases, as well as to compare the performance of companies over time. ROA is also a useful tool for assessing the efficiency of a company’s management in using its assets to generate profits.

Comparison Table

Company Net Income Total Assets ROA
Company A $1,000,000 $10,000,000 10%
Company B $2,000,000 $20,000,000 10%

Summary

Return on Assets (ROA) is a financial ratio that measures the profitability of a company in relation to its total assets. It is calculated by dividing the company’s net income by its total assets. ROA is a key indicator of how well a company is using its assets to generate profits and is a useful tool for comparing the performance of different companies in the same industry. For more information about ROA, you can visit websites such as Investopedia, The Balance, and Investing.com.

See Also

  • Return on Equity (ROE)
  • Return on Investment (ROI)
  • Gross Profit Margin
  • Operating Profit Margin
  • Net Profit Margin
  • Earnings Per Share (EPS)
  • Price-to-Earnings Ratio (P/E Ratio)
  • Debt-to-Equity Ratio (D/E Ratio)
  • Cash Flow Return on Investment (CFROI)
  • Economic Value Added (EVA)

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