Return on Assets (ROA) FormulaReturn on Assets (ROA) =
Net Income / Average Total Assets
Average Total Assets = (Beginning total Assets + Ending total Assets)/2
What is Return on Assets (ROA)?Investors and companies evaluate Return on Assets (ROA) to measure performance, if the company is making a profit with respect to their assets; how a company uses its assets to turn a profit. A key consideration when evaluating a companys ROA is the industry it is in and the required assets necessary to produce their product.
**Note** The Net Income comes from the Income Statement, and Total Assets are found on the Balance Sheet (review the beginning Total Assets and the period ending Total Assets). It is important to mention that a good or bad ROA varies by industry, so it is important to evaluate similar companies in similar industry's to know whether or not the Return on Assets is "good" or "bad." Once this evaluation is completed, then an investor will have a better idea of a company's potential.