Depreciation Expense Definition

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Depreciation Expense

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ENTITY THEORY is where a legal entity is regarded as having a separate existence from the owners. The financial statements are prepared from the perspective of the entity, not its owners. See PROPRIETARY THEORY.

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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