Profitability Ratio: Return on Assets
June 8th, 2006
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Another type of profitability ratio for assessing the profitability of a company is:
The RETURN ON TOTAL ASSETS (ROA % )
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FORMULA |
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Net Profit After Taxes / Total Assets |
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MEASURE WHAT |
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Indicates how well assets are used to create wealth, regardless of capital structure. Profitability of operations management |
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SCORE OR VALUE |
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Depends on industry 10-15% is reasonable Depends on industry
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SALIENT POINTS TO NOTE: |
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1.Add back interest expenses back into net income when performing this calculation so as to ignore financing and focuses on operations |
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2 Affected by assets valuation and mix |
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3.Can be broken into more useful details-asset turnover & profit margin using a Dupont framework
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