Return on assets
Return on assets or RoA measures the efficiency with which a company utilities its assets.
RoA is calculated by dividing the net income earned by the company with its average assets.
Below is the formula for calculating RoA:-
If a company’s net income is Rs 350 crore in a year with average assets at Rs 1,000, the RoA is 0.35, which means for every rupee of average asset, the company is earning 35 paisa on it.
RoA helps analyse the nature of profit of a company. The higher the RoA, the company is better able to utilise its assets for profit. Lower RoA indicates inefficient usage or that the assets are obsolete.