Return on assets

In this article, we want to address the issue of Return on assets, which has gained great relevance in recent years. Return on assets is a topic that has aroused interest in both the scientific community and the general public, due to its impact on different aspects of society. Throughout this article, we will explore different aspects related to Return on assets, from its origin and evolution, to its influence today. We will delve into its implications both at an individual and collective level, analyzing its importance in areas as diverse as the economy, technology, health, culture and the environment. Through a multidisciplinary approach, we aim to offer a comprehensive perspective that allows us to understand the relevance and complexity of Return on assets today.

The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue.

ROA can be computed as below:

[1]

The phrase return on average assets (ROAA) is also used, to emphasize that average assets are used in the above formula.[2]

This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same industry. The number will vary widely across different industries. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; companies that require large initial investments will generally have lower return on assets. ROAs over 5% are generally considered good.

Usage

Return on assets is one of the elements used in financial analysis using the Du Pont Identity.

See also

References

  1. ^ Susan V. Crosson; Belverd E. Needles, Jr.; Belverd E. Needles; Powers, Marian (2008). Principles of accounting. Boston: Houghton Mifflin. p. 209. ISBN 978-0-618-73661-4.
  2. ^ Kenton, Will. "Return on Average Assets (ROAA): Definition and How It's Used". Investopedia. Retrieved 2023-04-21.