Return on assets (ROA) gives investors an idea of how efficiently a company is using its resources to generate revenue. It can be calculated as Net Income divided by Average Total Assets. For example, a company that made $100 million in net income and had $1 billion in average total assets would have a return on assets of 10%. If another company made $100 million in net income and had $10 billion in average total assets, it would have a ROA of 1%. The higher the ROA, the more efficient your company is at using its resources to generate revenue.
The return on assets (ROA) gives a company’s investors an idea of how efficiently the management team is using its resources to generate revenue.
Return on assets (ROA) is a ratio that measures the profitability of a company’s use of its total assets to generate income. ROA can also be seen as an indication of how effective management is at generating profits from its assets.
To calculate return on assets, divide net income by average total assets:
Return on assets (ROA) is calculated by dividing net income by average total assets. The result is expressed as a percentage, which can be used to compare companies and industries. The higher the ROA, the better, because it means more profit is generated from each dollar of assets on hand.
Return on assets is a ratio that measures the profitability of a company’s use of its total assets to generate income. ROA can also be seen as an indication of how effective management is at generating profits from its assets. To calculate return on assets, divide net income by average total assets.
A high ROA does not necessarily mean a company is doing well, but it does give an investor a sense for how much money the company has at its disposal to grow.
Return on assets is a ratio that compares the amount of profit made by a company to its assets. The higher the ROA, the better it is for investors.
ROA can be useful as a way of ranking companies within an industry because it measures each company’s ability to generate profits relative to their total capitalization (assets). For example, if two companies have equal sales but one has more assets than the other and has a significantly higher ROA, it might be worth investigating why this is so. Is that company operating with fewer liabilities or paying off debt faster than its competitor? Has it invested in more productive machinery or hired better workers? These are all questions you could ask yourself when looking at two comparable companies’ performance using ROAs instead of just revenue growth rates alone.
However, even though ROAs can help determine which firms are doing better within similar industries (think about how Wal-Mart might fare against Costco), they’re not very useful for comparing across industries—or even for determining whether an individual firm will perform well over time because these figures don’t consider how much money goes into researching new products or developing new technologies before they hit store shelves and start generating profits (which isn’t accounted for in this ratio).
In addition, ROAs don’t take into account how much debt a company has. If a firm is borrowing heavily to expand its operations or purchase new assets, it may not be as profitable in the short-term but could be better off in the long run due to the added productivity from these investments.
In 2016, Apple had $215 billion in net sales, and $57 billion in net profit. Apple’s average total assets for that year were $248 billion. So dividing 57 by 248, we get 0.23, or 23%.
To calculate the ROA of a company, you need to divide its net profit by its average total assets. For example, if Apple had $215 billion in net sales and $57 billion in net profit for 2016, and its average total assets for that year were $248 billion, then dividing 57 by 248 would give you 0.23 or 23%.
If we compare these numbers with last year’s data (2015), we see that Apple had revenues of $233 billion and earnings per share of $8.67 (meaning they earned approximately 8 cents per dollar they spent). When we divide those numbers together to get our return on investment percentage—profit divided by sales—it comes out to 21%.
Because Apple’s ROI for 2016 was 23%, the company is doing better than it did in 2015. The higher the percentage, the better off a company is, because it means that their profits are increasing faster than their expenses.
That means that Apple converted 23 cents of every dollar of assets it held into profits in 2016. And if you compare that number to what the company did in 2015, it’s clear that Apple has been doing better on this metric year over year.
Return on assets is a measure of how well a company is using the money it has invested in its various assets. It’s calculated by dividing net income (or profit) by total assets, and can be seen as a measure of efficiency.
A high return on assets indicates that the company is doing something right with its money and has been able to turn it around into profits quickly—meaning that it’s probably not spending much time or money carrying things that aren’t profitable.
A low return on assets, however, might indicate that there’s some opportunity for improvement within your business model or corporate structure. You may need to take another look at where all your capital is going and look for ways to optimize what you have so you can wring more out of every dollar invested in your business model.
ROA may be useful as a way of ranking companies within an industry, but not across industries.
ROA may be useful as a way of ranking companies within an industry, but not across industries. ROA is a useful metric for evaluating a company’s performance and how it enters the marketplace.
The metric is a measure of how well the company manages its assets. It shows how much profit is generated for every dollar of assets on hand. A higher ROA means that the company is using its resources more efficiently, which can be an indicator of future growth.
And because it is a ratio, ROA can be used to compare companies of different sizes, as long as they are in the same industry and have similar accounting practices.
ROA can be calculated by dividing the net income of a company by its total assets. The metric is expressed as a percentage and looks like this: Return on Assets = Net Income / Total Assets
In conclusion, ROA is a useful metric for evaluating the profitability of a company. However, it’s not always easy to interpret the number. Some companies with high ROAs may be less profitable than others with lower ones, depending on how they use their assets and how much debt they carry on their balance sheet.
