ROA – Return on Assets
What Is ROA?
Return on assets (ROA) measures a company's profitability in relation to its total capital employed. It indicates how efficiently a company uses its capital. As a general rule: the higher the return on assets, the more efficiently the available capital is being used.
A ROA of above 12% is considered good in a broad stock market. Below this, the rating tends to be worse.
Calculation
Finanzoo calculation: To calculate the F-Score, Finanzoo relates net income to total capital, since only operating returns are of interest here. No sector smoothing in favor of capital-intensive industries takes place.
| Return on Equity (ROE) | Net income / Equity × 100% |
| Return on Sales | Net income / Revenue × 100% |
| ROI | Synonym for ROA |
Use in the Finanzoo F-Score
In the Finanzoo F-Score, return on assets carries a weight of 25% – making it the second-strongest component. Higher scores are awarded for rising returns.
Discussion
Comparing ROA between companies from different industries is sometimes difficult. Banks and insurance companies naturally show a very low ROA due to their business model. Knowledge-based companies such as pharmaceutical or software firms often do not capitalize research spending, which keeps total assets low and artificially inflates ROA.
ROA can be improved either through higher profits or through measures to reduce capital (e.g. capital release). Internationally, the term Return on Investment (ROI) is also commonly used as a synonym.