Return on Assets

ROA Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage.

There are two adequate ways to calculate return on assets.

2 = Net Income
2= ---------------------------------------------------= ROA
Average Assets for the Period

The ROA figures provide investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the healthier, because the company is earning more money on less investment.

For example, if one company ABC has a net income of 100 crore and total assets of 500 crore , its ROA is 20%; however, if another company CDF earns the same amount but has total assets of 1000 crore , it has an ROA of 10%. (this site give share market tips)

Companies such as telecommunication providers, car manufacturers, and railroads are very asset-intensive, meaning they require big, expensive machinery or equipment to generate a profit ,generally having below 5% of ROA. Advertising agencies and software companies, on the other hand, are generally very asset-light, generally having above 20% of ROA.

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