Return on assets (ROA)
AccountingDefinition
How many dollars of profit a company squeezes out of each dollar of stuff it owns (buildings, equipment, inventory, cash, etc.). Higher ROA means the company does more with less. It is one of the cleanest measures of business efficiency.
ROA varies wildly by industry. Software companies with few physical assets can post 20% ROA. Banks and utilities, which own massive asset bases, typically sit at 1-3%. Always compare ROA within the same industry, not across industries.
ROA varies wildly by industry. Software companies with few physical assets can post 20% ROA. Banks and utilities, which own massive asset bases, typically sit at 1-3%. Always compare ROA within the same industry, not across industries.
Formula
ROA = Net income divided by Total assets
Example
Apple has about $350 billion in total assets and generates about $100 billion in profit, for an ROA of around 28%. That is extraordinary. A regional bank holding $50 billion in assets and making $500 million in profit has an ROA of just 1%.