Return on assets (ROA) : Meaning, Formula and Example

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The return on assets shows how profitable a company’s assets are in generating revenue, that is, a ratio of 25% means that for every Rs.100 of investment in assets, net income of Rs.25 is generated. there are two ways to calculate ROA.

Formula for Return on assets

  1. \[Return\,on\,assets = \frac{{Net\,income}}{{Total\,assests}}*100\]
  2. Return on assets = Profit Margin*Asset Turnover

Example

Reliance Industries has a net income of Rs10,500 and total assets in the amount of Rs.1,14,000. This gives an ROA of 9.21%. This means that for every Rs.100 of investment in assets the company generates Rs9.21 of net income.