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Encyclopedia > 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:

ROA = EBIT / Total Assets = (Earnings Before Interest and Taxes / Sales) * (Sales / 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. Earnings before interest and taxes (EBIT), also known as operating income and operating profit, is a term used to describe a companys earnings. ... In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e. ...


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. In finance, Gearing is defined as the ratio between long-term debt to the shareholders funds on a companys balance sheet. ... In accounting and finance, the carrying value or carry value of an asset is the amount reported as the assets current nominal worth for accounting purposes. ... Market capitalization, often abbreviated to market cap, mkt. ... In Financial economics, a financial institution acts as an agent that provides financial services for its clients. ... “Banker” redirects here. ...


Return on assets is one of the elements used in financial analysis using the Du Pont Identity. and be impacted by inventory directly. The Du Pont Identity (also known as Du Pont analysis or Dupont analysis) is an expression which breaks ROE (Return On Equity) into three parts. ...


See also

Return on capital, also known as Return On Invested Capital (ROIC) is defined as NOPLAT / Invested Capital usually expressed as a percentage. ... This is a list of business and finance abbreviations. ...

External links

  • Return On Assets - ROA

  Results from FactBites:
 
Gannon On Investing: On Return on Assets (2590 words)
ROA can tell you a lot even in retail, but comparing two competing retailers on the basis of their ROA numbers may not work out all that well.
Obviously, the return on assets number is not like the earnings yield or free cash flow yield number in that it does not tell you anything about the investment itself – rather it tells you something about the underlying business.
Return on assets is independent of price; therefore, to compare it to a Treasury Bond you would have to combine ROA with a price metric like P/B. Actually, I’ve used that very combination as a kind of simple tool to explain value investing and market inefficiencies.
Return on Assets (ROA) - USES FOR ROA (753 words)
Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources.
ROA is known as a profitability or productivity ratio, because it provides information about management's performance in using the assets of the small business to generate income.
If the ROA and other profitability ratios demonstrate that this is not occurring—particularly once a small business has moved beyond the start-up phase—then the entrepreneur should consider selling the business and reinvesting his or her money elsewhere.
  More results at FactBites »

 
 

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