ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARY
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RETURN ON ASSETS Definition
RETURN ON ASSETS (ROA) shows the after tax earnings of assets. Return on assets is an indicator of how profitable a company is. Use this ratio annually to compare a business performance to the industry norms: The higher the ratio the greater the return on assets. However this has to be balanced against such factors as risk, sustainability and reinvestment in the business through development costs.
Higher ROA is better, but extremely high ROA may be an indicator of vulnerability as to any sustainable competitive advantage.
Formula: Earnings After Tax (EAITDA) / Total Assets
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EXPENSE is the amount of assets or services used during a period.
LINE ITEM is one item from a group of many items, e.g. one inventory item from the list of all inventoried items or one budgeted item from a financial budget.