Return on Assets ratio is one of the profitability ratio used to determine the utilization of Assets by the company to generate profits.Higher the value of ROA better is the usage of assets to make profit. The ROA is calculated by dividing the net income with total assets of the company. Total assets figure is obtained from balance sheet of XYZ Company by adding up current assets and fixed assets, net income figure is taken from the income statement of the XYS Company.
ROA = Net Income / Current Assets + Fixed Assets
ROA = 10 Million / 50 Million
ROA = 0.2 X 100 = 20 %
Company XYZ net income for the Year 2009 is 10 Million having 50 million of total assets. The company has 20% return on assets which shows the better utilization of total assets.
The companies in production and manufacturing industries requires more resources then the companies in service industry. The ROA for service companies are better on the other hand assets intensive companies are on lower side due to massive amount of total assets.