Return on assets (ROA)

A printable cheatsheet with calculations
and notes

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Return on assets (ROA)

ROA =

Net income

Average Total Assets

AKA: return on total assets

INTERPRETATION

The return on asset ratio shows how efficiently a company can manage its assets to produce profits.

Business owners, managers, and others use this ratio to help see how well the company can convert its investments in assets into profits.

Note: expanded calculation

Divide the company’s net income by the average total assets. Average total assets can be calculated by adding the prior period’s ending total assets to the current period’s ending total assets and dividing the result by two.

EXAMPLE

M&M’s balance sheet shows beginning assets of $1,000,000 and an ending balance of $2,000,000 of assets. During the current year, M&M company had a net income of $20,000,000. 

Average Total Assets = $1M +$2M /2 =$1.5M 

ROA = $20M / $1.5M = 13.33 = 1333.33%

Meaning that every dollar invested in assets during the year produced $13.3 of net income.

BENCHMARK: PG, HA, ROT

A ROA of over 5% is generally considered good, and over 20% is excellent. It’s important to compare ROAs among peer groups.

ROA :

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.