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:-

Source: Tavaga Research 


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.

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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.