Return on Assets

ROA = Net Income / Total Assets

ROA measures the effectiveness of a firm in using assets to create profits. This is what a company earns.

ROA can be increased by improving net profit margin (Operating Efficiency) and/or improving asset turnover (Asset Management Efficiency).

Based on DuPont Analysis, ROA can also be measured as:

• ? ROA = $\frac{\text{Net income}}{\text{Sales}}\times \frac{\text{Sales}}{\text{Total assets}}$ = $\frac{\text{Net income}}{\text{Total assets}}$

This shows how effectively the firm converts assets into sales, and sales to profits.