Term · Profitability & Growth
Return on Assets (ROA)
In briefReturn on Assets (ROA) measures how efficiently a company generates earnings with its total assets by relating an earnings measure to total assets. Unlike return on equity, it also includes debt capital.
Definition
Return on Assets (ROA) measures how efficiently a company generates earnings with all of its deployed assets. It relates an earnings measure to total assets. Unlike return on equity, it includes all capital, that is, debt capital as well.
How it is calculated
Formula. ROA = Net income ÷ Total assets × 100 % (often also: EBIT ÷ average total assets)
Why it matters for small caps
For small companies with many fixed assets, return on assets shows whether the deployed assets are generating an appropriate return at all. A persistently low ROA points to inefficient use of capital.
Common misreadings
- A high ROA is read as a quality signal, even though it can be distorted by low total assets, hidden reserves or capitalized items.
In the process
Frequently asked
What distinguishes ROA from ROE?
ROA includes all capital, ROE only equity. A high level of leverage can lever ROE above ROA.
Which earnings figure is used for ROA?
Depending on the definition, net income or EBIT. For comparisons, the same basis should be used consistently.
What is a good return on assets?
This depends heavily on the industry. Capital-intensive businesses naturally show lower figures than asset-light models.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.