ROA (return on assets)

ROA, or return on assets, is a measure showing how much profit a business generates relative to the total assets invested in the business. It gives an insight into how efficiently management uses the assets to generate a return.

How it is calculated

ROA is calculated by dividing the net result (after tax) by the average total assets in the same period, and then multiplying by 100 to give a percentage. The formula is as follows:

ROA = (Net result / Average total assets) × 100

Average total assets is calculated by taking the sum of total assets at the beginning and at the end of the period and dividing it by 2.

What is ROA used for?

ROA is an important measure for assessing a company's profitability and its efficiency in the use of assets. It helps investors and stakeholders evaluate how well a business generates a return on its total assets. A high ROA indicates that the company is using its assets efficiently to create profit.

Tips for improving ROA

1. Improve profitability. Increase income and/or reduce costs in order to improve the profit margin.
2. Efficient asset management. Optimise the use of assets, for example by reducing inventory or improving the utilisation of production equipment.
3. Cost efficiency. Reduce operating costs by identifying inefficient processes and implementing cost-saving measures.
4. Optimal capital structure. Consider the balance between debt and equity in order to ensure efficient use of capital and reduce financial costs.
5. Investment decisions. Make informed investment choices to ensure that the assets generate the expected return.

Read more about how the Capassa Score gives you a combined picture of your business's profitability.