Profitability Ratio: Return on Assets
Another type of profitability ratio for assessing the profitability of a company is:
The RETURN ON TOTAL ASSETS (ROA % )
FORMULA |
Net Profit After Taxes / Total Assets |
MEASURE WHAT |
Indicates how well assets are used to create wealth, regardless of capital structure. Profitability of operations management |
SCORE OR VALUE |
Depends on industry 10-15% is reasonable Depends on industry
|
SALIENT POINTS TO NOTE: |
1.Add back interest expenses back into net income when performing this calculation so as to ignore financing and focuses on operations |
2 Affected by assets valuation and mix |
3.Can be broken into more useful details-asset turnover & profit margin using a Dupont framework
|
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