# What Is Return on Assets?

Over time, your small business acquires items of value. These things that bring value to your business are assets. To see how profitable your assets are, learn how to find return on assets and its impact on your business. So, what is return on assets?

## What is return on assets?

An asset can be tangible (things you can touch) or intangible (things you can’t touch). Examples of assets include property, like cars, machinery, patents, or logos.

ROA can give you, investors, or financial analysts an idea of how well your company manages its assets. Your return on assets is a percentage.

Keep in mind when comparing return on assets that it varies by industry. One type of industry may have a different ROA range than another.

Here’s a breakdown of some common industries along with their average ROAs:

Industry Average ROA
Transportation 6.91%
Retail 7.20%
Healthcare 7.97%
Tobacco 15.89%
Grocery stores 33.50%
Consulting services 51.43%

What is a good ROA? Generally, the higher the return on assets ratio, the better. Compare your ROA to others in the same industry to see how your business ranks.

### Return on assets vs. return on equity

You have likely heard about return on equity (ROE) before. Both ROA and ROE measure how well your business utilizes certain resources.

ROE only measures your business’s return on equity, not including liabilities. And, ROA accounts for debt, while ROE does not.

## How to calculate ROA

Now that you know what is ROA, it’s time to learn how to calculate your return on assets. Return on total assets is simple to compute. You can find ROA by dividing your business’s net income by your total assets.

Net income is your business’s total profits after deducting business expenses. You can find net income at the bottom of your income statement.

To calculate ROA, use the following return on assets formula:

ROA = Net Income / Total Assets

### ROA calculation example

Using the handy ROA equation from above, let’s take a look at an example of computing ROA.

Say your business is in the technology industry, and the average ROA is 14.50%. Your business, ABC Company, has a net income of \$10,000. Your total assets equal \$65,000.

ROA = Net Income / Total Assets

15.38% = \$10,000 / \$65,000

Your ROA is 15.38%, which is slightly above the industry average of 14.50%.

If you want to increase your ROA, your net income and total assets must increase to equal similar values.

For example, if your net income increases to \$30,000 and your total assets remain the same at \$65,000, your ROA percentage would increase to 46.15%.

## Importance of ROA

Measuring ROA has many advantages, such as:

• Giving investors an idea of how well your business converts money into income
• Helping improve future business performance (e.g., increasing profits)

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