The return on assets (ROA) shows the percentage of how profitable a company’s assets are in generating earnings. This number tells you what the company can do with what it has. For example, how many dollars of earnings they derive from each dollar of assets they control. It’s a useful number for comparing competing companies in the same industry.
The number will vary widely across different industries. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have a lower return on assets. Return on assets is displayed as a percentage. ROAs over 5% is generally considered good.
Return of assets = Operating income / Total assets
Let’s evaluate the return on assets (ROA) for three companies in the retail industry:
|Company||Operating Income||Total Assets||ROA|
|A||$6.9 billion||$120 billion||5.75%|
|B||$896 million||$13.7 billion||6.5%|
|C||$631 million||$8.2 billion||7.7%|