Rate of Return on Assets Calculator
What is the Rate of Return on Assets (RoA)?
The Rate of Return on Assets (RoA) is a financial ratio that indicates how profitable a company is in relation to its total assets. It is a profitability ratio that measures how efficiently a company is using its assets to generate earnings.
The formula for RoA is:
RoA = Net Income / Total Assets
A higher RoA generally indicates better financial performance, as it suggests the company is generating more profit from its assets. Investors and analysts use RoA to compare the profitability of companies within the same industry, as different industries can have vastly different asset intensities.
Net Income is the profit a company has left after deducting all expenses, including taxes and interest, from its revenue. It is typically found at the bottom of a company's income statement.
Total Assets represents everything a company owns that has economic value. This includes current assets (like cash, accounts receivable, and inventory) and non-current assets (like property, plant, and equipment, and intangible assets).
Example Calculation:
Let's say a company has a Net Income of $75,000 and Total Assets of $1,500,000.
RoA = $75,000 / $1,500,000 = 0.05
To express this as a percentage, we multiply by 100:
RoA = 0.05 * 100 = 5%
This means the company generated a 5% return on its assets.