dividing net income by average total assets. ROA is a measurement that identifies how much the company earned for each dollar they invested in assets. It is a broad measure of company profits and successful management. Large corporations may calculate ROA for each department within a company to help evaluate the performance of department managers. Also, the ROA can be compared to the standard ROA for that industry to see how a company measures up against its competitors. Some industries require more assets to operate in the industry. For example, the auto manufacturers and utility companies require a lot of expensive assets to operate and may have a lower ROA industry average than a publishing or software company. Publishing and software industries have a relatively high ROA because it's possible to turn a generous profit in those industries with little, or no investment, in assets. There are two standard formulas for calculating ROA.
(Net Income / Average Total Assets) = Return on Assets
(Net Profit Margin x Asset Turnover) = Return on Assets
Resource – Small Business Calculator – Bankrate retrieved at https://www.bankrate.com/calculators/business/return-ratio.aspx
Income statement photo courtesy of flickr/Casey Serin