Return on Assets (ROA)

ROA is calculated by taking Net Income / Average Total Assets and is expressed as a percent. Useful for comparisons between Companies in similar Sectors.

Return on Assets (ROA) is an easy financial ratio to calculate, similar to ROE. Employed to indicate the efficient use of Total Assets employed over the Financial Year by the level of return or Net Income generated. ROA is expressed as a percent, calculated by the following formula.

ROA = Net Income / [(Total Assets TY-1 + Total Asset FY0)/2]

The correct name is Return on Average Assets (ROAA). Thus, combining a P&L entry, the Net Income and an average Balance Sheet entry for Total Assets over the just completed FY. ROA is not a Valuation Ratio and is not used to estimate a Price Target for the listed Share Price. Instead, ROA is a useful measure for Inter-Sectoral comparisons by Management and Investors. They are able to evaluate how efficiently the Assets of a Company are being employed to generate Net Income.