Return on Assets (ROA): This ratio addresses the question, “How many dollars of Profit for every dollar of Assets?” ROA is an overall measure of how efficient an organization’s management is at generating returns on total capital employed in the business. ROA Improves when Sales rise faster than expenses, also often referred to as “the third bottom line” or “return on investment.”
Many organizations measure managers on ROA, because the financing of the business (the question of how much leverage to use) is not under their control. How efficient is the manager with a given amount of assets is the right question to ask. ROA also encourages managers to reduce their exposure to underperforming assets.
The formula for return on assets is: Net Profit Annualized before tax/Total Assets . In FinancialSoft Financial tools the annualized Net Profit is the last 3 month sales multiplied by 4.
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