Business, Legal & Accounting Glossary
Return on assets is often computed as net income divided by average assets ((beginning assets + ending assets)/2), because net income is generated continuously through the period, not only on the last day.
The second part of the return on assets equation shows how efficiently the company can generate revenue from the assets it has. Both higher profitability and higher efficiency yield a better return on assets.
Over the last 10 years, that company has averaged a ROA of 12.25%.
A good way to compare the financial health of banks is to look at their return on assets percentage, since most of their holdings will be in cash or cash equivalents.
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This glossary post was last updated: 15th February, 2020