Return on assets
Also called: ROA
Net profit divided by average total assets, showing how much profit a company earns on everything it owns.
ROA equals net margin times asset turnover, and ROE equals ROA times financial leverage. It is the key profitability measure for banks and other lenders, whose high leverage makes ROE look large.
Example
A bank with an ROA of 1.5% and assets 12 times its equity has an ROE of about 18%.
Learn more in these lessons
- Return on assetsWhat does return on assets tell you, and when is it the right measure?
- Analysing banks and lendersHow do you analyse a bank or a lending company?
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