Return on assets
Return on assets (ROA) is net income divided by total assets, measuring how efficiently a company turns its entire asset base into profit, independent of how those assets are financed.
See it move
A gauge shows return on assets at 16.4 percent. Panorama Bakery earned net income of €180,000 for the year against average total assets of €1,100,000, the mean of €1,000,000 at the start and €1,200,000 at the end. Every €100 tied up in ovens, vans and inventory produced roughly €16.40 of profit, regardless of how those assets were financed.
The formula
Variables
- Net income (€)
- Average total assets (mean of opening and closing balance sheet figures) (€)
Shows how much profit a company earns per euro of assets employed, independent of how those assets are financed.
Check yourself
A logistics firm reports net income of €240,000 for the year. Total assets were €1,800,000 at the start of the year and €2,200,000 at the end. Using average total assets, what is the firm's return on assets?