Return on assets (ROA)

Definition

Return on assets (ROA) in plain English

Return on assets, or ROA, asks a simple question: for every dollar of stuff the company owns, how much profit does it squeeze out? You take the yearly profit (net income) and divide it by everything the company owns and uses to operate (its total assets). It's like measuring a food truck's yearly earnings against the full value of the truck, oven, and equipment — a higher ROA means the business is using its gear efficiently. It lets you compare how well two companies turn what they own into actual profit, regardless of their size.

Learn these first

• Inventory turnover
• Net profit margin

Related Principles of Finance terms

• Altman Z-score
• Asset turnover
• Basel III
• Cash conversion cycle
• Cash flow from operations (CFO)
• Cash ratio
• Current ratio
• Days inventory outstanding (DIO)
• Days payable outstanding (DPO)
• Days sales outstanding (DSO)