Return on assets (ROA)
Return on assets (ROA) shows how efficiently your business turns what it owns into profit. It is a ratio: profit divided by total assets, usually shown as a percentage. A higher ROA means you generate more profit from each unit of assets.
Simple ROA example
If net profit is 20,000 and average total assets are 200,000, ROA is 10% (20,000 ÷ 200,000).
Use ROA to track your own trend over time or to compare with similar, asset-heavy businesses. It varies a lot by industry, so focus on consistency in how you calculate it and compare like with like.
Be consistent with these common calculation choices:
- Profit measure: net profit after tax vs operating profit.
- Asset base: average assets over the period vs assets at period end.
- Scope: all assets vs operating assets only (exclude idle or financial assets if not relevant).
- Timing: match the profit period to the asset period you use.
