Return on assets
1. Return on assets or RoA measures the efficiency with which a company utility its assets.
2. With more efficiency and better management; ROA will grow, and the profit of any organization would go up.
Return on assets or RoA measures the efficiency with which a company utility its assets.
RoA is calculated by dividing the net income earned by the company with its average assets.H
Example of 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. K
About Return on Assets
The return on assets (ROA), also called return on investments. Though widely used, ROA is an odd measure because its numerator measures the return to shareholders (equity and preference), whereas its denominator represents the contribution of all investors (shareholders as well as lenders). The RoA is an indicator of the company’s overall performance.
ROA for banks
There are two significant indicators of the bank’s performance; they are return on assets (RoA) and return on equity (RoE). Return on assets determines the profitability of the bank compared to its assets. In other words, RoA measures how efficiently a bank utilizes its resources. If the efficiency increases, the RoA of the bank also increases. It means with more efficiency and better management; ROA will grow, and the profit of any organization would go up. If profit increases, the bank’s capital increases, and increment in the capital means the bank could lend more money, which in turn expands the bank’s business, and with respect to this profit will also increase. It increases productivity of the banks.