Guide to ROA: How to Use Return on Assets - 2021

Return on Assets (ROA) is a profitability ratio used to determine a company’s profitability relative to its total assets, or the amount of money the institution has invested in doing business. The ROA formula compares a company’s total assets (found on its [balance sheet](https://www.masterclass.com/articles/what-is-a-balance-sheet)) with its net income (found on the company’s [income statement](https://www.masterclass.com/articles/how-to-read-and-understand-an-income-statement)) over a given period of time. An ROA calculation gives investors an indication of how efficiently a business uses its invested capital and [assets](https://www.masterclass.com/articles/assets-vs-liabilities). Anything over five percent indicates a good ROA and anything above twenty percent is excellent. This metric is also useful in comparing the profitability of different companies within a similar industry but is not as accurate when comparing companies in different fields. Return on assets allows a business owner, economist, investor, or accountant to assess the capital employed by a particular firm to produce income. It’s an important figure to gauge a company’s management of its assets in order to generate revenue and may make a difference between an investor or client working with a particular company or not. One business may have a higher net income than its competitor, but if they have a lower return on assets, they are less efficient at generating income than a competitor with a higher return on assets. Calculating return on assets across different industries can be unreliable because different industries have different asset turnovers and requirements. The return on assets formula is calculated by dividing a business's net earnings by the dollar of assets you would find on its balance sheet. The formula is: Return on Assets = Net Income / Total Assets. The higher the ROA number, the more efficiently a business is generating profit from its assets. Return on Assets compares a company's total assets against its net income over a given period of time. [Return on investment](https://www.masterclass.com/articles/how-to-calculate-return-on-investment-roi) (or ROI) is a similar financial ratio that only considers the income generated by one specific investment relative to its cost. Return on investment is calculated by dividing income generated on the investment since it was purchased by the cost of the investment itself. Get the [MasterClass Annual Membership](https://www.masterclass.com/) for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more. Return on assets is an important metric in corporate finance that represents how efficiently a company uses its assets to generate income. You can calculate a company’s ROA by dividing a company’s net income by its assets over a given period of time, which you can find in its financial statements.