Sunday, June 8, 2008

Expanded ROA Equation

Expanded Return on Assets (ROA) Equation

There ROA equation is very useful when conducting financial ratio analysis. It determines how effective a company is at using their assets to generate sales. The percentage can be compared to competing firms.

Return on Assets (ROA) = Net Profits / (Average Assets)
Or
Return on Assets (ROA) = (Asset Turnover) x (Net Profit Margin)


Expanded Return on Assets (ROA) Equation

Return on Assets (ROA) = [(Sales) / (Average Assets)] x [(Net Profits) / (Sales)]


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