Return on assets (ROA)

Definition

Return on assets (ROA) is a financial metric that measures a company’s efficiency in generating profits from its total assets

What is return on assets?

Return on assets provides insight into how effectively a company is utilising its resources to generate earnings. it’s expressed as a percentage and is widely used by investors, analysts, and managers to assess a company’s financial performance. 

To calculate return on asset, the following formula can be used:

Return on assets = (net income / total assets) x 100%

A higher ROA indicates that a company is using its assets more efficiently to generate profits. It suggests that the company is effectively managing its resources to generate returns for its shareholders. On the other hand, a lower ROA may indicate that the company is less efficient in generating profits from its assets. This could be due to various factors, including high operating costs or underutilisation of assets.

Monitoring ROA over time can provide insights into a company’s operational efficiency and management effectiveness. Improving ROA over time is often a positive sign of a company’s financial health.

Limitations of return on assets

ROA does not account for differences in financing or capital structure. A company might achieve a higher ROA by using more debt, which can also increase financial risk. Furthermore, it does not provide insights into the absolute size of profits. A company may have a high ROA but still generate relatively low profits if it has a small asset base.

Example of return on assets

Let’s consider a fictional company, XYZ Corporation. XYZ Corporation reported a net income of £500,000 for the year ending December 31, 2023. Their total assets at the beginning of the year were £5,000,000, and at the end of the year, they were £6,000,000.

To calculate ROA we use the formula from above with the average total assets being £5,500,000:

ROA = £500,000 / £5,500,000 = 0.0909 or 9.09%

This means that for every pound of assets XYZ Corporation holds, it generated approximately 9.09 pence in net income during the year.

Ready to grow your business?

Clever finance tips and the latest news

Delivered to your inbox monthly

Join the 95,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

We work with world class partners to help us support businesses with finance

Our offices:

Disclaimer: Swoop Finance helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans or other finance products ourselves. We can introduce you to a panel of lenders, equity funds and grant agencies. Whichever lender you choose we may receive commission from them (either a fixed fee of fixed % of the amount you receive) and different lenders pay different rates. For certain lenders, we do have influence over the interest rate, and this can impact the amount you pay under the agreement. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Swoop Finance can introduce applicants to a number of providers based on the applicants’ circumstances and creditworthiness. Swoop Finance Limited is registered with the Financial Conduct Authority as an Account Information Services Provider (reference number 833145). Swoop Finance Limited is authorised as a credit broker under FCA registration number 936513. If you feel you have a complaint, please read our complaints section highlighted above and also contained within our terms and conditions. Swoop Finance Ltd is registered with Companies House (company number 11163382, registered address The Stable Yard, Vicarage Road, Stony Stratford, Milton Keynes MK11 1BN). VAT number: 300080279

© Swoop 2025

Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop