Return on Assets

You can judge how well a company uses its assets by calculating the return on assets (ROA). If the ROA is a high percentage, the company is likely managing its assets well. As an investor, that's important because your shares of stock represent a claim on those assets. You want to be sure that your claim is being used wisely. If you haven't invested yet, be sure your investment will go toward stock in a company that invests its assets well. As with all ratios, you need to compare results with those of similar companies in an industry in order for the numbers to mean anything.

To calculate ROA, divide net income by total assets. You can find net income at the bottom of the income statement, and you can find total assets at the bottom of the assets section of the balance sheet.

Net income * Total assets = Return on assets

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