Define: Return On Assets

Business, Legal & Accounting Glossary

Definition: Return On Assets


Quick Summary of Return On Assets


Net income for a specific time divided by total assets, often used to measure profitability.



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Full Definition of Return On Assets


Return on assets is net income divided by total assets.

Thus if net income is $100,000 and total assets are $1,000,000, return on assets is 10%.

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.

Also, note that return on assets calculates the return on all capital, from both creditors and owners — unlike return on equity, which includes only owners capital.

Return on assets is more revealingly if less efficiently, computed as Net Margin (net income/sales) X Asset Turnover (sales/assets).

Because sales appear in both numerator and denominator, the equation reduces to net income/assets, ie, return on assets.

The first part of the return on assets equation shows how much profit the company can wring from each sales dollar.

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.


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Examples of Return On Assets in a sentence


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.


Synonyms For Return On Assets


ROA


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American Psychological Association (APA):
Return On Assets. PayrollHeaven.com. Retrieved April 05, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/return-on-assets/

Definition Sources


Definitions for Return On Assets are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 15th February, 2020