Return On Assests (ROA)

This ratio provides a how management makes an efficient use of its assets to generate more earnings. Management of a company shall make an investment in a such way that it results into high earnings. for example. if a Company A earns Rs.1cr. after investing Rs.10cr.then Return on Assets is 10% whereas if other company B earns Rs.1cr. after investing Rs.20cr.then Return on Assets is 5%. it means Company A has used its assets in best possible manner to generate earnings. Return on Assets can be computed by way of
following formula.

Return on Assets = Net Income/Total Assets