Wednesday 2 January 2019

Return on Assets (ROA) Formula

Return on Assets (ROA)

A return on Assets is often refer to with the return on Assets is a ratio of profitability that shows the percentage of profit (net profit) which is obtained company in connection with the overall resources or average total assets. In other words, return on Assets or often abbreviated with the ROA is the ratio that measures how efficient a company is managing its assets to generate profits for a period. ROA expressed in percentage (%).

It can be said that the only purpose of the company's assets is generating revenue and certainly also produces profitably for the company itself. The ratio of Return on Assets ROA or can assist management and investors to see how well a company capable of converting its investments in assets into profits or profit (profit).

The return on assets or Return on Assets this fact can also be considered the yield of an investment (return on investment) for a company because in general capital assets (capital assets) is often the largest investment for most companies. In other words, money or capital invested into capital assets and returns or yield the results are measured in the form of profits or profit (profit) acquired.

Basic of ROA 

The return on assets or Return on Assets varies in different industries. The industry is capital intensive Industries such as railroads, mining industry and high-tech Electronics Industry will generate a rate of return of assets are low. This is because these industries require assets expensive to do business.

Whereas industry is not a capital-intensive industry like software or service industry. It will generate a rate of return of assets or a high ROA ratios. Because these industries do not require valuable assets expensive.

Therefore, the ratio of ROA (Return on Assets) is more appropriate. To compare moving companies in the same field or to compare. The company's performance from one period to the next period.

Formula ROA (Return on Assets)

ROA (Return on Assets) or the rate of return on Assets is calculate by dividing the net profit of the company (usually annual income) with the total assets and are displayed in the form of a percentage (%). There are two general ways in calculating ROA i.e. by calculating the total assets on a certain date or by calculating the average of total assets (average total assets). The following is the formula ROA (Return on Assets) or the rate of return on assets.

The Formula of The ROA

Return on Assets (ROA) = net profit after Taxation/Total assets (or average Total assets)

Calculation example ROA (Return on Assets)

On the basis of financial reports as per the date of 31/12/2016, net profits or Net Income is $ 1.713 trillion. While Total Assets was as much as $ 61.433 trillion.

What is ROA or Return on Assets (rate of return of assets).


The ROA = net profit after Taxation/Total assets (or average Total assets)
ROA = 1.713 trillion rupiah/IDR 61.433 trillion
ROA = 2.79%

So ROA with code issuers this was of 2.79%.

Analysis and assessment of the ROA (Return on Assets)

As mentioned earlier, the Return on Assets Ratio is useful to measure. How efficient a company is to be able to change the money use to buy the assets into net profit.

A higher ratio indicates that the company is more effective in managing its assets to generate net income amount. ROA will be very beneficial when compare to moving companies in the same industry. Because different industries will use different asset in running its operation.

For example, mining companies must use equipment that is large and expensive. While software companies (software house) just use the computers and servers in running its business.

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