Return on assets (ROA)

An indicator of how profitable a company is relative to its total assets. ROA tells investors how much profit a company generated for each N1 in assets. It measures how effectively a company is converting the money it has to invest (shareholders’ capital plus short and long-term borrowed funds) into net income. It is considered the most stringent test of return to shareholders. Companies such as telecommunication providers, car manufacturers and railroads are very asset intensive, meaning they require big, expensive machinery or equipment to generate a profit. It a company has no debt, the ROA and ROE figures will be the same. ROA is a company’s annual earnings divided by its total assets. It is expressed as a percentage. Sometimes this is referred to as “return on investment”. ROA = Net Income / Total Assets