Return on assets (ROA)
Financial Dictionary — Financial Analysis
Definition
shows the after tax earnings of assets. Return on assets is an indicator of how profitable a company is. Use this ratio annually to compare a business' performance to the industry norms: The higher the ratio the greater the return on assets. However this has to be balanced against such factors as risk, sustainability and reinvestment in the business through development costs.
Use cases, Example & Why it matters
Use cases
- Used to interpret financial statements and evaluate performance, liquidity, solvency, and efficiency.
- Used when comparing periods, peers, and forecasting outcomes.
- Used when comparing periods, peers, and forecasting outcomes.
Example
- Example: Analysts apply **Return on assets (ROA)** to assess trends and compare the company with industry benchmarks.
Why it matters
- Why it matters: Turns raw numbers into insights, supports decision-making, and highlights risks and opportunities early.