ROA Calculator

Net income

Total assets

Return on assets (ROA)

Enter any two of net income, total assets, and ROA. The calculator solves for the third.

Break ROA down (DuPont)

Enter revenue to split ROA into net profit margin and asset turnover.

Add return on equity and leverage

Enter total equity to see ROE and how much leverage separates it from ROA.

Use average total assets

Enter beginning and ending asset balances to work from the average, the way analysts do.

Please input values into the fields

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Compare with typical industry ROAs

Plot your ROA against typical figures for banks, utilities, manufacturing, retail, and software.

Return on assets (ROA) shows how much profit a company can generate with its existing assets. The calculation is simple: you divide net income by total assets and express the result as a percentage. An ROA of 8% means that the assets in place generated $0.08 in profits during this year.

This tool calculates the remaining value when you input two of three values - net income, total assets or ROA. If you know net income and total assets, it will calculate ROA. If you know a target ROA and one of the other two values, it will solve for the third value. This is useful in model analysis to figure out what net income is required to achieve a desired return on a given asset base, for example.

Formula to calculate return on assets:

Return on assets is expressed as a percentage of net income divided by total assets.

\text{ROA} = \left(\frac{\text{Net Income}}{\text{Total Assets}}\right) \times 100

By rearranging the formula, the other two unknown values can be determined using the same relationship.

\text{Net Income} = \frac{\text{ROA} \times \text{Total Assets}}{100}

\text{Total Assets} = \frac{\text{Net Income}}{\text{ROA}} \times 100

To illustrate this with a concrete example: if the net profit is €100,000 and total assets are €1,250,000 then ROA is 8%. In other words: during that period, for every €100 of asset value, there was an earnings of €8.

Term	Where it comes from	Example
Net income	Bottom line of the income statement	100,000
Total assets	Total from the balance sheet	1,250,000
Return on assets	Net income / total assets x 100	8%

Average total wealth

While net income is earned over a period of time, total assets on the balance sheet are only a snapshot at one point in time. To compare both values, analysts usually use average assets for the beginning and end of the year instead of the ending value.

\text{Average Total Assets} = \frac{\text{Beginning Assets} + \text{Ending Assets}}{2}

Using an average smooths out the effects of large acquisitions or divestitures during the year because such transactions can distort the figures. When you enable "Use Average Total Assets", the tool calculates the average after you simply enter two values.

How to use this calculator:

Enter the net income and total assets for the same period of time and select the appropriate magnitude (thousands, millions or billions).
Check the return on assets (ROA). Alternatively, you can enter a target ROA and either net income or total assets to automatically calculate the missing value.
Enable 'Break down ROA (DuPont analysis)', enter the sales figures and divide ROA into profit margin and asset turnover.
Enable "Add Return on Equity" and enter total equity to see how leverage affects the difference between ROA and return on equity.
Enable the Use average total assets option to perform the calculation based on the average of the beginning and ending asset values.

What should be a good return on assets (ROA)?

This depends almost entirely on the industry in question and so comparing across industries is pointless. Software companies and consulting firms generally have low capital requirements to run their business, leading to values of around 15% to 20%. Banks, utilities, and manufacturers of heavy industrial goods tend to have values between 1% and 8%, as their balance sheets are filled with loans, power plants, or factory equipment.

Comparing Apple to a regional bank is not very useful, but comparing Apple to Microsoft can provide many interesting insights. As a rough guideline, an ROA of over 5% is acceptable, over 10% is good and over 20% is excellent. However, always remember that these values should be evaluated in comparison with similar companies within the same industry.

Identify strong companies: Use a stock screener to look for companies with high ROAs, which indicates that they are efficient at turning capital into profits. Companies with high ROAs can grow without constantly needing to raise new capital.
Assess creditworthiness: Lenders look at the ROA from a business customer's perspective. The higher the ROA, the more likely it is that a company can generate enough cash to pay off its debts.
Check the capital allocation: internally it is understood that if planned factories or acquisitions exceed current ROA then this will improve overall performance otherwise it will be a drag on performance.

ROA and DuPont Analysis

If the ROA changes, a DuPont analysis can help explain why. This analysis breaks down the ratio into two factors: profitability and efficiency.

\text{ROA} = \underbrace{\frac{\text{Net Income}}{\text{Revenue}}}_{\text{Net Margin}} \times \underbrace{\frac{\text{Revenue}}{\text{Total Assets}}}_{\text{Asset Turnover}}

The net profit margin shows the proportion of sales that ends up as a profit. The return on assets shows how much revenue can be generated from a given amount of assets. Grocery stores for example have low profit margins but high returns on assets while software companies have high profit margins but lower asset requirements. It is possible for two very different businesses to achieve the same ROA through different means, but the analysis will show which factors are actually at play.

Comparison of ROA and ROE

Return on assets (ROA) and return on equity (ROE) look similar but answer different questions. ROA divides net income by all of the assets, including those purchased with debt. ROE uses only shareholder-supplied equity in the denominator.

The difference between the two is leverage, which can be expressed as a debt to equity ratio (assets divided by equity). Even banks with low profit margins can achieve very high ROEs by stacking up debt on top of little equity while keeping ROA low. This is a risk that ROA exposes and ROE obscures. So ROA provides better insight when comparing companies with vastly different levels of leverage.

\text{ROE} = \text{ROA} \times \frac{\text{Total Assets}}{\text{Equity}}

Improvement of ROA

There are only two ways to increase the leverage effect: Either more profits are made from existing assets or non-profitable assets are divested.

On the revenue side, pricing power, cost control and a shift in product mix toward higher-margin products are all contributing to the numerator.
In the area of assets: Generally slow moving inventory, vacant properties and receivables that are more than 60 days past due will be reviewed.
Asset divestitures: Selling off underperforming business units can improve ROA overnight. This is one of the reasons why activist investors push for such moves.

When a company's return on assets (ROA) has declined for several consecutive years, it is usually because of one of three situations: the assets are not performing as well as they did originally, profit margins have come under pressure or competition has increased to the point that more capital must be deployed in order to generate the same amount of revenue. The Dupont analysis is the fastest way to identify which of these causes is at play.

Frequently asked questions

What is a good return on assets (ROA)?

It depends on the industry. Software companies and consulting firms generally have values between 15% and 20%, since they require less capital. Banks, utilities, and manufacturers of heavy industrial goods tend to have values closer to 1% to 8%, because their balance sheets are larger. As a rough guideline, anything over 5% is acceptable, anything over 10% is good, and anything over 20% is very good. Always compare with companies in the same industry rather than relying on an absolute value alone.

What is the difference between ROA and ROE?

Return on equity (ROE) divides net income by shareholders' equity. Return on assets (ROA), on the other hand, uses total assets as the denominator and thus takes into account any assets that were financed with debt. The difference between the two is leverage. Banks with low profit margins can achieve very high ROEs through borrowing in a small amount of equity while ROA remains quite low. For this reason, ROA is a better metric when comparing companies with vastly different levels of debt since it cannot be inflated by loans.

Should you use total wealth or average total wealth?

Analysts usually use average total assets, which is the average of beginning and ending assets for a given period. While profit is earned over an entire year, the balance sheet only shows one point in time. By averaging the beginning and ending values, you can compare periods more easily and smooth out the effects of large acquisitions or divestitures of assets during the course of the year. The value of assets at the end of the year is good for quick estimates, while the average is more accurate. This calculator allows you to calculate the average.

Can Return on Assets (ROA) be negative?

Yes, it can happen. If the net income is negative, then ROA will also be negative, meaning that a loss per invested asset has been incurred during this period of time. This often happens with start-ups who are expanding their investments and doesn't necessarily have to be a red flag. However, for established companies, a negative ROA usually indicates impairment losses, restructuring costs or an actual decline in demand which requires further investigation.

What is the DuPont Analysis for ROA?

The DuPont analysis breaks down ROA into net profit margin (net income divided by sales) and asset turnover (sales divided by total assets). The profit margin measures how much of each sale is left over as a profit, while the asset turnover measures how efficiently capital is being used. This is useful because it shows what factors are driving changes, even if very different companies - such as a low-margin supermarket and a high-margin software company - can achieve the same ROA in different ways.

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Disclaimer: This calculator is provided for general informational and educational purposes only. Our calculators are under active development, and results may be inaccurate, incomplete, or unsuitable for your situation. Always verify the figures independently and seek advice from a qualified professional before relying on them. We make no warranties and accept no liability for any loss or decision arising from use of this tool.

References

Wall Street Prep: Return on Assets (ROA)
Formula, average-total-assets convention, and how to read ROA across industries.
Corporate Finance Institute: Return on Assets & ROA Formula
ROA definition, the DuPont link to margin and turnover, and ROA versus ROE.