Define: Return On Average Assets

UK Accounting Glossary

Definition: Return On Average Assets



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Full Definition of Return On Average Assets


Return On Average Assets (ROAA) is an indicator used to assess the profitability of a firm’s assets. In other words, the ROAA indicates what a company can do with what it possesses.  As Return On Average Assets is calculated at the end of a period (quarter, fiscal year, etc.), it does not reflect all of the highs/lows but is merely an average of the period.  It is most often used by financial institutions as a means to gauge their performance.

ROAA Formula

The Return On Average Assets formula uses the net income divided by average total assets. The result is expressed as a percentage of the total average assets.

Return On Average Assets Interpretation

As ROAA is calculated at the end of a period (quarter, fiscal year, etc.), it does not reflect all of the highs/lows but is merely an average of the period.  It is most often used by financial institutions as a means to gauge their performance.

The ROAA allows a business owner to evaluate the benefits associated with holding those assets, and decide if the returns are sufficient to merit continuing to hold onto them.

For investors, the Return On Average Assets is useful in assessing the financial strength and efficiency of a company in the use of its assets.  A lower ROAA reflects an asset-intensive company, requiring a large amount of money reinvested into it to continue generating earnings.


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Synonyms For Return On Average Assets


ROAA


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Return On Average Assets. PayrollHeaven.com. Retrieved March 29, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/return-on-average-assets/

Definition Sources


Definitions for Return On Average 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: 22nd March 2020.