Return on Assets (ROA) - Definition & Calculation

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Return on Assets (ROA): Return on Assets measures the amount of revenue generated by the company based on its investments in Assets. It may also be defined as the rate at which the assets of the company generate revenues for the company. This particular metric is very much popular in analysing the capital intensity of the company. Lower the ROA, higher the capital intensity.

Formula:       Net Income     
                       Average Total Assets

Implication: Just like money attracts money, the same way assets attract revenue for any organisation and it could be in any form. Land, plant and machinery, stock, manpower etc are some of the examples. This metric provides us information as to requirement of assets for generation one unit of income vis a vis how capital intensive the industry is.

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