Return on Assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate Earnings.
The higher the return, the more productive and efficient management is in utilizing economic resources. The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net Income produced by total assets during a period by comparing net income to the average total assets.
In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period.
Return on assets is displayed as a percentage and its calculated as:
ROA = Net Income/ Total Assets
ROA = Net Income/ End of Period Assets
In basic terms, ROA tells you what earnings were generated from invested Capital (assets).
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Just from the above example, lets take a look at the example of Returns of Assets:
ROA = Net Income / Total Assets
25% = 25,00,000 / 1,00,00,000
Your ROA is 25%, which is slightly above the industry average of 20.00%.
If you want to increase your ROA, your net income and total assets must increase to equal similar values.