Return on Assets is a profitability ratio that measures how effective a company is at converting assets into income. A higher return on assets shows that the company is efficient in utilising its asset base.
It is important to note that return on assets can vary greatly between different sectors. Hence, the ratio should only be compared between different companies in the same sector.
Return on Assets = Net Income ÷ Total Assets
As return on assets uses net income in its calculation, the ratio accounts for the company’s expenses.
(expressed as a percentage)