Download App

Log in to access Online Inquiry

What Is Return On Assets (ROA)?

Views 3892022.03.23

article image

Key takeaways

  • A company's Return on Assets (ROA) is a financial ratio calculated by dividing a firm's net income by its average total assets

  • ROA can be used to determine how efficiently a company utilizes its assets to generate profit

  • ROA should not beused across industries since companies in one industry have different asset bases from those in another

Understanding Return on Assets (ROA)

The term Return on Assets (ROA) refers to a financial ratio that indicates how profitable a company is in relation to its total assets. 

ROA is calculated by dividing a firm's net income by its average total assets during a period of time (usually in one year). It is generally presented as a percentage.

The formula is:

article image


article image

(Average total assets are used in calculating ROA because a company's assets can vary over time due to the purchase or sale of vehicles, land, equipment, inventory changes, or seasonal sales fluctuations. )

Corporate management, analysts, and investors can use ROA to determine how effective it is for the company to convert resources into net profit. 

The higher the ROA number, the better because the company can earn more money with a smaller investment. Put it simply; a higher ROA means more asset efficiency.

Investors can use ROA to find opportunities in the stock market. A ROA that rises over time indicates the company is doing well at generating its profits with its investment. On the other hand, if the company has over-invested in resources that have failed to produce revenue growth, its ROA may be falling. 

ROA for public companies can vary substantially and are highly dependent on their industries, so the ROA for a tech company won't necessarily correspond to that of a food and beverage company. 

This is why it is better to compare a company's ROA against its previous figures or a similar company's ROA.

Example of Return on Assets (ROA)

The chart below is the balance sheet from $Apple(AAPL.US)$ 10K statement showing the company's total assets at the end of the fiscal years ended September 26, 2020, and September 25, 2021.

article image

article image

Below is the income statement for the fiscal year 2021 (for the year ended September 25, 2021) for $Apple(AAPL.US)$ according to its10K statement:

article image

article image

This means that for every dollar in assets during FY 2021, $Apple(AAPL.US)$generated 28.06 cents in profit.

The content in this article is intended for general circulation and informational purposes only. It does not take into account the investment objectives, financial situation or needs of any particular person and should not be relied on as advice or recommendation. Information provided in this article are not specifically intended for or specially targeted at the public in any specific jurisdiction. Neither Moomoo Inc. nor its affiliates are licensed Financial Advisers and do not provide financial advice. You are advised to consult your financial adviser before making any commitment to invest in any capital markets product. The information published is not and does not constitute or form part of any offer, invitation or solicitation to subscribe or to enter into any transaction in capital markets products. Moomoo is a professional trading app offered by Moomoo Inc. In the U.S., investment products and services on Moomoo are offered by Futu Inc., Member FINRA/SIPC. In Singapore investment products and services are offered through Futu Singapore Pte. Ltd., regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the MAS. Moomoo Inc., Futu Inc. and Futu Singapore Pte. Ltd are affiliated companies. Any illustrations, scenarios, or specific securities referenced herein are strictly for illustrative purposes. Past investment performance does not guarantee future results. Investing involves risk and the potential to lose principal.

Trade like a pro with moomoo

Get free stock and start your professional trading today

Terms and conditions apply right-arrow