The return on assets shows how profitable a company’s assets are in generating revenue, that is, a ratio of 25% means that for every Rs.100 of investment in assets, net income of Rs.25 is generated. there are two ways to calculate ROA.
Formula for Return on assets
- \[Return\,on\,assets = \frac{{Net\,income}}{{Total\,assests}}*100\]
- Return on assets = Profit Margin*Asset Turnover
Example
Reliance Industries has a net income of Rs10,500 and total assets in the amount of Rs.1,14,000. This gives an ROA of 9.21%. This means that for every Rs.100 of investment in assets the company generates Rs9.21 of net income.