What is a stock's return on assets (ROA)?

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by kimberly , in category: Stocks and Equities , 9 months ago

What is a stock's return on assets (ROA)?

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1 answer

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by daniela , 9 months ago

@kimberly 

A stock's return on assets (ROA) is a financial ratio that measures a company's profitability by evaluating how efficiently it utilizes its total assets to generate profits. It is calculated by dividing the company's net income by its average total assets.


The formula for calculating ROA is as follows:


ROA = Net Income / Average Total Assets


ROA provides insight into how effectively a company is using its assets to generate profits. It helps investors and analysts determine how efficiently the company is utilizing its resources.


A higher ROA indicates that a company is generating more profits relative to its assets, which is considered favorable. On the other hand, a lower ROA suggests that the company is not utilizing its assets effectively and may be less profitable. It is important to compare a company's ROA over time or against its industry peers to obtain a meaningful interpretation of the ratio.