Overview

Return on assets (ROA) is a financial metric used to assess how profitable a company is in relation to its total assets. It is a type of return on investment (ROI) measure that indicates how well the company utilizes its assets in generating income. The formula for calculating the return on assets is as follows:

ROA = Net Income / Average Assets

or

ROA = Net Income / End of Period Assets

Companies in different industries will likely have very different ROA requirements. For capital-intensive industries that usually invest in a large amount of fixed assets (e.g. PP&E) for their daily operations, companies tend to have a lower ROA. It is important to compare the ROA of companies with similar characteristics and operate in the same industry for apple-to-apple comparisons.

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