ROA Concept

The term ROA (English acronym of return on assets) is an indicator of profitability used in companies economical and financial analyzes and that seeks to evaluate the management efficiency and capacity of the assets held by the company as for the production of financial results. The higher the ROA value better will be the company’s performance in the use of its assets.

Its calculation is made by the quotient between the net results value obtained by the company in a certain period and the value of its net assets at the end of that period. Thus set out, if, for example, its value is 0,1, such means that each net assets’ euro held by the company produces 10 cents of net results.

ROA = Net Results / Net Assets

Sometimes are used mythologies of additive decay to better analyze ROA, decomposing it, through a simple mathematical device, in two ratios: one of sales net profitability (that gives an idea of net margin) and another of assets rotation (which measures the transformation level of the sales’ assets).

ROA = NR / A = (NR / A) . (BV / BV) = (NR / BV) . (BV / A)

In which NR = Net Results, A = Net Assets and BV = Business Volume.

Return on assets concept slightly differs from the return on investment (ROI), who doesn’t consider in its calculation the debt effects allowing this way to evaluate the financial leverage effect.