ROA / Return on Assets

ROA or return on equity is a frequently used profitability indicator. It examines how much after-tax profit the company achieved compared to the total average assets.

Return on assets (ROA) is the indicator that compares the total company assets and the net result compare it. Similar to for return on equity (ROE) , but as long as there own to capital they compare the result, while ROA compares the taxed profit with the entire company's assets. This profitability indicator therefore shows what results the company was able to achieve by managing assets. 

ROA is calculated as taxed profit we divide it by the total average asset stock, so we get a percentage indicator. Averaging is necessary when calculating assets because it also changes during the year, and ROA applies to a period, typically one year. In other words, we have to count on an annual average asset stock. 

ROA and the like indicators they do not undertake to reveal the conditions and reasons behind the numbers. They are good for making the performance of individual companies comparable. With this, the efficiency of a business can be well assessed if, for example, someone wants to buy that company. The change in the value of ROA can also be an important feedback for the management, who can measure from this how the company they manage manages the assets entrusted to them. 

However, comparability is not infinite: it is not worth comparing these figures for companies operating in completely different sectors. The indicators of a traveling company, a creative industry enterprise or a livestock farm are completely different and will always be different. 

The comparison is therefore more valid against competitors and similar companies, where the numbers already eloquently indicate who is performing better. It can be a good benchmark in addition to these if benchmark value, for example the average ROA indicator of the sector, we compare the same data of our own company or the company we want to buy.