Return on total assets (ROA) or return on investment (ROI)

Return on total assets (ROA) is also called return on investment (ROI). It refers to how effective is management in generating returns on assets of the firm.

Return on assets (ROA) or return on investment (ROI) = Earnings available for common stockholders/Total assets

For example, if ABC’s total assets are $3,500,000 and earnings available for common stockholders is $400,000 than

ROA or ROI=400,000/3,500,000

ROA or ROI=0.11

This means that for every dollar of assets, ABC earned 11 cents. The more the firm earns on every dollar of assets the better.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s