Return on assets (ROA) is defined as net profit divided by the average total assets for the most recent financial year.
The ratio helps understand number of units of profit generated per unit of assets owned by the company. Higher number indicates better asset utilisation. In order to ensure assets bought during the financial year does not distort the ROA number, average of assets at the beginning and ending of the financial year is used.
An increasing trend in ROA indicates improved efficiency in managing the assets of the company. ROA’s of 2 or more companies operating in the same sector can also be compared with each other.