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Return on assets (ROA)

Method of calculation

Formula for return on assets (ROA): net profit / total assets * 100%

Ratio's description

This ratio informs about the company's ability to generate net profit from the assets (total capital). High ratio's values indicate high profitability of the total assets. However, it should be remembered that these high values may result from the age of the involved fixed assets, which – although mostly amortized – did not lose the production capabilites. Thus the assessment requires the analysis of the quality of fixed assets, which should be included in the interpretation if it achieves high values.

Ratio's interpretation

  • High ratio's values and their increase over time are assessed positively (it indicates high or increasing profitability of total assets).
  • Low ratio's values and their decrease over time are assessed negatively (it indicates low or decreasing profitability of total assets).

WARNING! The above interpretation is valid only if ROE, ROA and ROS are simultaneously greater than 0.

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