Formula
ROA = net income ÷ total assets × 100 (%)
Total assets are equity and liabilities combined. With net income of KRW 8 billion and total assets of KRW 100 billion, ROA is 8%.
Definition
ROA (return on assets) is net income divided by total assets, showing as a percentage how much profit the company made by putting all of its assets to work. An ROA of 8% means KRW 8 of net income a year for every KRW 100 of assets.
Unlike ROE, which looks only at equity, ROA uses everything as the denominator, including assets funded by debt. It therefore looks at how efficiently the assets themselves are used, regardless of how much debt the company took on.
Reading ROE and ROA together reveals where profit came from. A high ROE with a low ROA signals that much of that high ROE was built with debt as a lever. Jupick does not put ROA directly into the grade, but treats it as a companion for interpreting ROE.
How to read it
A higher ROA is read as using assets efficiently to generate profit. A company that makes more profit from the same assets runs a more efficient business.
ROA depends heavily on a sector's asset structure. Banks and manufacturers, which need to hold a lot of assets, tend to come out low, while service and platform businesses that need few assets tend to come out high, so comparisons within the same sector are accurate.
A large gap between ROE and ROA means the company has used a lot of debt. Setting the two numbers side by side and reading the gap gives a sense of whether profit comes from the strength of the assets or from debt.
Points to watch
- Asset structures differ widely by sector, so ROA is hard to compare across sectors as is.
- When net income spikes from one-off gains or losses, ROA is distorted along with it. Looking at the trend over several years is safer.
- A company that has revalued its assets or just finished a large investment has larger total assets, so its ROA can come out low for a while.