Return on Assets Calculator

More about the Return on Assets so you can better use the results provided by this finance calculator

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The Return on Assets \((ROA)\) is the ratio of net income to total assets. This ratio is a profitability measure, and it indicates how many dollars in net income a firm has for each $1 in total assets.

How do you calculate the return on assets? What formula do you use?

In order to calculate the ROA, we use the following formula:

\[ \text{ROA} = \displaystyle \frac{\text{Net Income}}{\text{Total Assets}}\]

What is a good return on assets? In general terms, the largest, the better. A high ROA means that the management team is capable of creating income from the firm's assets.

A similar metric, and a useful tool is this return on equity calculator, which measures the ability of a firm of generating income from its equity.

Example: Calculation of Return on Assets

Question: Assume that you are the manager of a company that has a net income of $15,000, and the value of its assets is $400,000. Compute the firm's return on assets.

Solution:

This is the information we have been provided with:

Net Income =	\(15000\)
Total Assets =	\(400000\)

The return on assets \((ROA)\) is computed using the following formula:

\[ \begin{array}{ccl} ROA & = & \displaystyle \frac{\text{Net Income}}{\text{Total Assets}} \\\\ \\\\ & = & \displaystyle \frac{\text{\textdollar}15000}{\text{\textdollar}400000} \\\\ \\\\ & = & 0.0375 \end{array} \]

Therefore, the return on assets for the given net income of \(\text{\textdollar}15000\) and total assets of \(\text{\textdollar}400000\) is \(ROA = 0.0375 = 3.75\%\). This means the company generates \(\text{\textdollar}0.04\) in net income for every $1 in total assets.

Calculators for other financial ratios

In corporate finance, the use of financial ratios is crucial to get a quick snapshot of the financial status of a company in absolute terms, and relative to the industry it operates in.

The Return on Assets (ROA) is a very commonly used financial ratio to measure efficiency in assets management. You can find many other financial ratio calculators in our site, including our current ratio , quick ratio , our days' sales in receivables , and our inventory turnover calculator.

Another interesting measure to look into when investigating about the Return on Asset for a firm is the Total Asset turnover