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.


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