There is no universal “good” ROA because it depends heavily on the industry and business model. Asset-light businesses (software, consulting) can have ROA well above 10–15%, while asset-heavy businesses (utilities, airlines, manufacturing) often have ROA in the low single digits. A practical rule of thumb is to compare a company’s ROA to: 1) its own history, 2) direct competitors, and 3) its cost of capital. A rising ROA versus peers and over time is usually a positive sign.

Yes. If net income (or EBIT) is negative, ROA will be negative. A negative ROA means the company is destroying value over the period – its assets generated a loss instead of a profit. Persistent negative ROA can indicate structural problems, early-stage investment mode, or a cyclical downturn, depending on the context.

How is ROA different from ROE?

ROA measures profit relative to total assets (both debt- and equity-financed), while ROE measures profit relative to shareholders’ equity only. A company can have modest ROA but high ROE if it uses a lot of debt (leverage). ROA is better for assessing how efficiently the business uses all capital; ROE is better for assessing returns to equity investors.

Return on Assets (ROA) Calculator

Calculate Return on Assets (ROA) using net income or EBIT and average or ending assets. Compare scenarios and understand how efficiently your business turns assets into profit.

ROA Calculator

Scenario A

Profit basis

Choose whether to base ROA on net income or EBIT.

Profit amount

Asset basis

Beginning assets

Ending assets

ROA (Scenario A): –

Average assets used: –

Scenario B (optional)

Use Scenario B to compare against a competitor, prior year, or target plan.

Profit basis

Profit amount

Asset basis

Beginning assets

Ending assets

ROA (Scenario B): –

Average assets used: –

Scenario comparison

Enter values for Scenario A (and optionally B) to see a comparison here.

What is Return on Assets (ROA)?

Return on Assets (ROA) measures how efficiently a company uses its assets to generate profit. It answers the question: “For every dollar of assets, how much profit does the business produce?”

ROA is widely used by investors, lenders, and managers to compare performance across time and against peers, especially when businesses have different sizes or capital structures.

ROA formulas

Standard ROA (using net income)

\[ \text{ROA} = \frac{\text{Net income}}{\text{Average total assets}} \times 100\% \]

Operating ROA (using EBIT)

\[ \text{Operating ROA} = \frac{\text{EBIT}}{\text{Average total assets}} \times 100\% \]

where average total assets are usually calculated as:

\[ \text{Average total assets} = \frac{\text{Beginning total assets} + \text{Ending total assets}}{2} \]

When to use net income vs. EBIT

Net income: captures the effect of interest and taxes; reflects returns to equity holders.
EBIT: focuses on operating performance; better for comparing companies with different leverage or tax rates.

Step-by-step: how to calculate ROA

Choose the profit measure
Decide whether you want ROA based on net income (standard) or EBIT (operating ROA).
Find profit for the period
Use the income statement to get net income or EBIT for the same period as the assets (e.g., full year).
Determine total assets
From the balance sheet, note total assets at the beginning and end of the period.
Compute average assets
Add beginning and ending assets and divide by 2. If assets are stable, ending assets alone may be acceptable.
Apply the ROA formula
Divide profit by average assets and multiply by 100 to get a percentage.

Worked ROA example

Suppose a company reports:

Net income: $250,000
Beginning total assets: $4,500,000
Ending total assets: $5,500,000

First, compute average assets:

\[ \text{Average assets} = \frac{4{,}500{,}000 + 5{,}500{,}000}{2} = 5{,}000{,}000 \]

Then calculate ROA:

\[ \text{ROA} = \frac{250{,}000}{5{,}000{,}000} \times 100\% = 5\% \]

This means the company generated a 5% return on the assets it employed during the year.

How to interpret ROA

Higher ROA generally indicates more efficient use of assets.
Compare within the same industry – asset intensity varies widely by sector.
Track trends over time – a rising ROA often signals improving operations or better asset management.
Watch for one-off events – asset write-downs, large acquisitions, or disposals can distort ROA.

Typical ROA ranges by business model (very rough)

Asset-light (software, services): often 10–20%+ in strong years.
Manufacturing, retail: commonly mid single digits to low teens.
Utilities, heavy industry: often low single digits due to large asset bases.

Limitations of ROA

Accounting-based: depends on historical cost and depreciation policies; may understate the value of older assets.
Ignores off-balance-sheet items: leases, partnerships, or intangibles can distort comparisons.
Not directly comparable across industries: always benchmark against similar companies.
Short-term focus: a company investing heavily for growth may show temporarily low ROA.

ROA vs. other profitability ratios

ROA vs. ROE: ROA uses total assets; ROE uses shareholders’ equity. High leverage can boost ROE without improving ROA.
ROA vs. profit margin: profit margin looks at profit per dollar of sales; ROA looks at profit per dollar of assets.
ROA vs. ROIC: ROIC focuses on returns on invested capital (debt + equity used in operations), often excluding non-operating assets.

Return on Assets (ROA) – FAQs

What is a good ROA?

There is no universal “good” ROA. It depends on the industry, business model, and risk profile. Asset-light businesses (software, consulting, online platforms) can sustain ROA above 10–15%, while asset-heavy businesses (utilities, airlines, telecom, manufacturing) often operate with ROA in the low single digits. The most useful comparison is against:

the company’s own historical ROA,
direct competitors, and
its cost of capital (e.g., WACC).

Should I use net income or EBIT for ROA?

Both are accepted, but they answer slightly different questions:

Net income / assets – classic accounting ROA; reflects returns to equity holders after interest and taxes.
EBIT / assets – operating ROA; focuses on operating performance before financing and tax effects.

For comparing companies with different leverage or tax regimes, EBIT-based ROA is often more comparable.

Why use average assets instead of ending assets?

ROA compares a period’s profit to the assets used to generate that profit. If assets changed significantly during the period (e.g., due to acquisitions, disposals, or major capex), using only the ending balance can misrepresent the true asset base. Average assets (beginning + ending divided by 2) better approximates the assets in place over the period.

Can ROA be negative?

Yes. If net income (or EBIT) is negative, ROA will be negative. A negative ROA means the company’s assets generated a loss during the period. This can occur in early-stage growth companies, during recessions, or when a business is restructuring. Persistent negative ROA is a red flag and warrants deeper analysis.

How often should I track ROA?

Public companies typically report ROA on a quarterly and annual basis. For internal management, many finance teams monitor ROA (or operating ROA) at least quarterly, and sometimes monthly for large asset-intensive operations. The key is to track it consistently over time and in combination with other metrics like ROE, margin, and asset turnover.