Profitability
Return on Assets (ROA)
ROA measures profit relative to everything the company owns, regardless of how it was financed.
Return on assets is the broadest efficiency ratio. Two firms with the same ROE can have very different ROAs if one is leveraged. ROA ignores that leverage and asks how much profit the asset base produces. It is especially useful for banks and for spotting a low-return empire that only looks good after debt is applied.
Asset-light firms post high ROAs because the denominator is small. Asset-heavy firms post low ones and can still be excellent investments at the right price. As with every return ratio, the peer group is the comparison that matters.
Formula
ROA = net income ÷ average total assets
Live example
Apple Inc. (AAPL) last printed at $345.33 with a market cap of $5.04T. Apply the formula on this page to that live price. Where the quote is missing an input, the stock page's financials are the next place to read it.
Related
Return on Equity (ROE) · Return on Invested Capital (ROIC) · Debt to Equity
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Questions
What is a good ROA?
Above 5% is strong for many asset-heavy businesses. Software can be far higher. Banks often look 'low' because their asset base includes the loans.
Does ROA include debt?
The profit is after interest, and the assets were partly funded by debt, but the denominator is all assets. It is not a pure unlevered return. That job belongs to ROIC.