What it is:
This number tells you how effective your business has been at putting its assets to work. The ROA is a test of capital utilization - how much profit (before interest and income tax) a business earned on the total capital used to make that profit. This ratio is most useful when compared with the interest rate paid on the company's debt. For example, if the ROA is 15 percent and the interest rate paid on its debt was 10 percent, the business's profit is 5 percentage points more than it paid in interest.
When to use it:
Return on assets is an indicator of how profitable a company is. Use this ratio annually to compare your business' performance to your industry's norms.
The formula:
Earnings before interest and taxes (EBIT) divided by net operating assets.
Calculate your ROA ratio:
Return to ratios list
