Return on Assets – ROA Calculator

Written by:
PK

Below is a Return on Assets or ROA calculator. Enter a business's net income and total assets, and the tool will calculate its ROA.

What is ROA or Return on Assets?

Return on Assets, or ROA, is the ratio of a company's net profit or net income to its total assets. It's a valuable measure of financial performance, although only when comparing companies in the same industry. Nevertheless, it effectively lets you compare how well management performs relative to the assets on the company's books.

Return on Assets Formula

The formula for Return on Assets (ROA) is

Return\ On\ Assets\ (ROA)=\frac{Net\ Income}{Total\ Assets}

Where:

• Net Income – Net earnings remaining after deducting all costs, including line items (where applicable) such as taxes, interest, depreciation, and amortization.
• Total Assets – All assets listed on the company's balance sheet.

Generally, you want to use average assets, taking the average between assets at the start of the period and the end. That's because the balance sheet will change as the period continues, and the balance sheet will look different at the beginning and end of the period.

Limitations of ROA

ROA is a good measure for comparing a company versus itself in the past or versus peer companies, but not great for comparing across industries. This is because industries employ assets in different ways – while banks have an accounting system dedicated to marking assets correctly, they won't compare to asset-light industries like tech. Likewise, manufacturing tends to have many assets tied up in plants and equipment, and ROA is a more helpful measure there.

A more useful comparison for company efficiency is the return on invested capital or (maybe, in some cases) return on equity.

Using the ROA Calculator

ROA is most useful in certain industries where ROA is a good benchmark across peer companies. Banks are the canonical example – looking at ROA is a great check on a bank's performance. For most of the investable universe, though, it's best to look at another measure – especially as companies become more and more asset-light.

Other resources:

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.