Financial Statement Analysis
 Profitability Ratios
 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Profit Margin Formula
 Profit Percentage Formula
 Profit Formula
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBITDA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Equity Ratio
 Return on Capital Employed (ROCE)
 ROCE Formula (Return on Capital Employed)
 Return on Invested Capital (ROIC)
 Return On Investment (ROI)
 Rate of Return on Investment
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Total Assets Formula
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
 Cap Rate Formula
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Markup
 Markup Percentage Formula
 Ratio Analysis (17+)
 Liquidity Ratios (29+)
 Turnover Ratios (17+)
 Efficiency Ratios (7+)
 Dividend Ratios (9+)
 Debt Ratios (26+)
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Return on Assets Ratio Formula
ROA ratio is a measure of profitability for the company.
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ROA shows the profitability of the company in relation to its Average Total Assets.
Here’s the return on assets ratio formula:
Return on Assets Ratio Example
Company A:
 Net Income = $40,000
 Opening Assets = $150,000
 Closing Assets = $190,000
 Average Total Assets = (Opening + Closing)/2 = (150,000 + 190,000)/2 = $170,000
Company B:
 Net Income = $70,000
 Opening Assets = $280,000
 Closing Assets = $110,000
 Average Total Assets = (Opening + Closing)/2 = (280,000 + 110,000)/2 = $195,000
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Explanation of Return on Assets Ratio Formula:
 ROA Formula shows the profit earned as a percentage from its Average Total Assets for the period by a company.
 It shows that how efficiently the company can convert its investment in Assets into profits.
 For better results, some analysts add back the cost of acquiring capital (interest expense) to Net profits while calculating the ratio.
 While measuring profitability ROA Formula takes into account the assets financed by equity holders as well as debt holders, hence, interest expense is added back to the Net Income.
 Due to the various operations of the company, assets may vary over the period of time, which is why the average of the total assets are considered.
 It is given by (Opening Assets + Closing Assets)/2. It helps in missing out on major changes in asset positions happening in the whole year.
Use of ROA Formula
 Return on assets ratio formula gives the investors and creditors an overview of the top management’s efficiency to bring out earnings from the company’s assets.
 Whenever comparison of companies with similar capitalization is to be done, Return on assets ratio formula proves to be an apt profitability measure.
 Return on assets ratio formula showcases the profitgenerating strength of the assets that are employed by the company.
 It is internally used by the managers to track the asset use over a period of time, to monitor the performance of the company in regards to industry performance.
Interpretation of Return on Assets Ratio
 It is always better for the company to have a higher ROA. The higher the better.
 It shows that the management is efficient and capable of generating more and more profits from the available assets.
 In the above example Company B is comparatively better as it has a higher ROA of 36% as compared to that of Company A which has a ROA of 24%.
 It means that every dollar that company B invests in debt or equity it is able to return 36 cents as profits per year.
 If this percentage (36%) has a yoy increasing trend then it can be said that the company is managing its assets efficiently.
(Return on Assets Ratio) ROA Calculator
You can use the following ROA Calculator.
Net Income  
Average Total Assets  
Return on Assets Ratio  
Return on Assets Ratio = 


Return on Assets Ratio in Excel (with Excel Template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of Net Income and Average Total Sales. You can easily calculate the ratio in the template provided.
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