How to Calculate Return on Assets

by Jen Vane; Updated September 26, 2017
Calculate Return on Assets

Return on assets is a measure of a company's profitability. In investing, the return on assets ratio provides a snapshot of how much profit a company is able to keep from every dollar it makes in sales. It's important because it helps show whether a company is using its money wisely. Here's how to calculate it.

The equation for calculating return on assets looks like this: Net income divided by total assets. You can find both these numbers in a company's annual report.

For this example, we'll use Microsoft's 2007 annual report. The company lists its net income (found on the income statement) as $14.1 billion, and its total assets (found on the balance sheet) as $40.2 billion. So the math looks like this: $14.1 billion / $40.2 billion = 0.351. Move the decimal point two places to the right, and you get a return on assets of 35 percent.

So what does this number mean? Well, a higher ROA is better, because it means a company is making more money on less investment (assets). For example, if Microsoft's total assets were $80 billion while its net income remained the same at $14.1 billion, its ROA would be 18 percent. In that scenario, Microsoft would have spent almost twice the money ($80 billion compared to $40.2 billion) to achieve the same amount of income ($14.1 billion) -- thus, its return on assets would be much lower.

Tips

  • Average return on assets varies widely by industry. Make sure you look at the average ROA for an industry at large when you are interpreting your results.

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