Return on Assets Calculator Formula
Understand the math behind the return on assets calculator. Each variable explained with a worked example.
Formulas Used
Return on Assets (ROA)
roa = (total_assets_start + total_assets_end) > 0 ? (net_income / ((total_assets_start + total_assets_end) / 2)) * 100 : 0Average Total Assets
avg_assets = (total_assets_start + total_assets_end) / 2Variables
| Variable | Description | Default |
|---|---|---|
net_income | Net Income(USD) | 150000 |
total_assets_start | Total Assets (Beginning)(USD) | 900000 |
total_assets_end | Total Assets (End)(USD) | 1100000 |
How It Works
How to Calculate Return on Assets
Formula
ROA = (Net Income / Average Total Assets) x 100
ROA tells you how many cents of profit each dollar of assets generates. It combines profitability and asset efficiency into a single metric. Companies with high ROA are squeezing strong profit from a lean asset base, which is a hallmark of well-managed businesses.
Worked Example
A company earned $150,000 in net income. Total assets were $900,000 at the start and $1,100,000 at the end.
- 01Average Total Assets = ($900,000 + $1,100,000) / 2 = $1,000,000
- 02ROA = ($150,000 / $1,000,000) x 100 = 15%
- 03Each dollar of assets produced 15 cents of net income.
Frequently Asked Questions
What is a good ROA?
An ROA above 5% is generally considered good, while above 20% is excellent. Asset-light industries like software can achieve 20%+ ROA, while capital-intensive industries like manufacturing may consider 5% solid.
How does ROA relate to ROE?
ROA measures returns on all assets (funded by both debt and equity), while ROE measures returns only on shareholder equity. A company can have high ROE but low ROA if it uses significant leverage.
Learn More
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Understanding Financial Ratios
Learn the most important financial ratios for evaluating business health. Covers liquidity, profitability, efficiency, and leverage ratios with formulas and benchmarks.
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