Return on Assets (ROA) answers: how much net profit does the business generate for every dollar of assets employed?
ROA = Net Income / Total Assets × 100
What Counts as Total Assets?
Total assets from the balance sheet = Current Assets + Non-Current Assets: - Current: cash, accounts receivable, inventory, prepaid expenses - Non-current: property, plant and equipment (PP&E), intangibles, investments
Using Average Assets
For greater accuracy, use average total assets:
Total Assets (avg) = (Beginning Assets + Ending Assets) / 2
This smooths seasonal distortions and asset purchases mid-year.
What's a Good ROA?
ROA varies enormously by capital intensity. A software company with $2M in assets generating $1M in net income has 50% ROA. A steelmaker with $500M in assets generating $25M has 5% ROA — that may still be competitive for the industry.
Compare ROA within your sector, not across industries.