Return on Assets Calculator
Calculate how efficiently assets generate profit
ROA Formulas
Understanding Return on Assets
Return on Assets (ROA) measures how efficiently a company uses its assets to generate profit. It answers: for every dollar in assets, how many cents of profit does the company earn? An ROA of 10% means $0.10 profit per $1 of assets.
ROA is particularly useful for comparing companies within asset-heavy industries like manufacturing, banking, or utilities. Higher ROA indicates better asset utilization. The DuPont formula breaks ROA into profit margin × asset turnover.
Asset-light businesses (software, consulting) naturally have higher ROA than asset-heavy ones (manufacturing, airlines). Always compare within industries and track trends over time rather than using absolute benchmarks.
DuPont Analysis Components
Profit Margin
Net Income ÷ Revenue. How much profit per dollar of sales.
Asset Turnover
Revenue ÷ Assets. How efficiently assets generate sales.
ROA
Margin × Turnover. Overall asset efficiency.
Improvement Path
Improve either margin (pricing, costs) or turnover (utilization, sales).
ROA Benchmarks by Industry
| Industry | Typical ROA | Asset Intensity | Notes |
|---|---|---|---|
| Technology | 10-20% | Low | High margins, low assets |
| Retail | 5-10% | Medium | Inventory-heavy |
| Manufacturing | 4-8% | High | Capital intensive |
| Banking | 1-2% | Very High | Massive asset base |
| Utilities | 3-6% | Very High | Infrastructure-heavy |
ROA Analysis Tips
Compare Within Industry
A 5% ROA is excellent for banking but poor for tech. Industry context is essential.
Use Average Assets
Average beginning and ending assets for more accuracy, especially for growing companies.
Break Down with DuPont
If ROA declines, DuPont analysis reveals whether margin or turnover is the issue.
Consider ROE Too
ROA ignores leverage. ROE shows return on equity. High ROE with low ROA indicates heavy debt use.
Frequently Asked Questions
What is a good ROA?
It varies by industry. Generally, 5%+ is solid for asset-heavy industries, 10%+ for moderate, and 15%+ for asset-light businesses. Banks typically have 1-2% ROA due to huge asset bases. Always compare to industry peers.
ROA vs ROE: What's the difference?
ROA uses total assets in the denominator; ROE uses shareholders' equity. ROE = ROA × Leverage. A company with high debt will have ROE much higher than ROA. ROA shows operational efficiency; ROE shows shareholder returns.
Why do banks have low ROA?
Banks have enormous asset bases (loans, securities). Even highly profitable banks show 1-2% ROA because assets are so large. That's why ROA for banks shouldn't be compared to other industries.
How can a company improve ROA?
Either increase numerator (net income) or decrease denominator (assets). Options include: improving profit margins, selling underutilized assets, increasing asset productivity, or strategic outsourcing to reduce owned assets.
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