How to Calculate ROA (Return on Assets)

This video shows how to calculate a company's Return on Assets (ROA). It provides an example to show how ROA can be used to compare firms' performance.
ROA is calculated by dividing a company's Net Income by its Average Total Assets. You can compute the Average Total Assets by adding the company's total assets from its most recent Balance Sheet date to its total assets from the previous year's Balance Sheet date and dividing the sum by two. You use the Average Total Assets because you want to approximate the amount of assets the company had during the year (or quarter, month, etc.) during which the company generated the Net Income.
Examining ROA is important, because it measures how profitable a company is after taking into consideration its assets. To show why this matters, think about the following example: let's say two entrepreneurs earned a profit of $1,000 in their first year of business. They might seem equally successfully because they earned the same profit, but what if one of the entrepreneurs began with just $50 in assets whereas the other entrepreneur started out with $10,000,000 in assets? They both earned the same profit, but one of the entrepreneurs did more with less. Thus, ROA measures how efficient a company was at generating profit from its assets.-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
edspira.thinki...
-
LISTEN TO THE SCHEME PODCAST
Apple Podcasts: podcasts.apple...
Spotify: open.spotify.c...
Website: www.edspira.co...
-
GET TAX TIPS ON TIKTOK
/ prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
www.edspira.co...
-
CONNECT WITH EDSPIRA
Facebook: / edspira
Instagram: / edspiradotcom
LinkedIn: / edspira
-
CONNECT WITH MICHAEL
Twitter: / prof_mclaughlin
LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
www.edspira.co...
michaelmclaugh...

[@MyFinancialFocus]

Good to see a company that knows how to optimize their return on assets.

[@Venelll]

I've gotta thank you for these videos, this year has been a dousy for me and these videos have really helping me for my Financial Accounting class.

[@archer31archer71]

This helps me so much in my online class thank you very much your videos are clear and easy to understand

[@InSterquiliniisInvenitur]

This was a great video! Thanks for the examples as I was struggling to understand how to apply this principle in my supply chain management class.

[@isaharaulins4117]

I must tell you that all absolutely all your videos are helpful to me...thank you so much

[@rafaghamdi5122]

your explanation are wonderfull and excellent , thank you alllootttt

[@krishnam8176]

Edspira, all your videos are easily understandable, thank you so much. i was searching for Return on Equity video. can you please explain that.

[@ahko5257]

Thank you so much I love your videos
Would you please explain vat tax and vat return
Thank you

[@Edspira]

Value added tax is a type of tax on goods and services common in European countries. This is not a type of tax used in the United States, and I'm not too familiar with it. In the U.S. we have sales tax when goods are sold. Here's a video on how the U.S. sales tax works: edspira.com/topic/sales-tax Thanks for watching!

[@AlyssaYeoman]

start vlogging i wanna see the man behind these masterpieces

[@Edspira]

Ha! I don't think I'll ever get into vlogging...but here's my website. www.MichaelMcLaughlin.com

[@marryclaremowa5765]

Thank you sir😊❤

[@Edspira]

Welcome 😊

[@ExcelTutorials1]

Awesome, thank you!

[@yosmuc]

Amazing as always! Thanks

[@anna-lenaratz7474]

GREAT VIDEO!!!

[@Erez.Levi.Stocks]

Thanks a lot for the information, don't you relate to financing expenses as well ?

[@pfaloa]

Do you have a video on ROE?

[@javarmartin7822]

Thanks

[@ahimbaza]

Hello there. Thanks for this helpful video. Its been now 1 week of googling and youtubing for how to apply the formula. I think i am getting the right answer. FOR BETTER ME TO UNDERSTAND, IF I'VE GIVEN TOTAL ASSETS FOR 3 YEARS : Y1,Y2 and Y3, AND I WANT TO CALCULATE ROA FOR Y3. WHAT WILL BE MY AVERAGE ASSETS FOR Y3?
(Y3+Y2)/2? or
(Y1+Y2+Y3)/3?
Please help me know the right answer. Thank you

[@stockpickinganalysis]

th-cam.com/video/Mn7iqZ4ToyU/w-d-xo.html

[@stephenandrade5584]

How do I calculate the ROA of a company in its first Month??

[@jenessagayetano6842]

Blurred video. But there is a clear video part.

[@mcgrawdepaul3830]

Is this the same thing as ROI (return on investments)?

[@Edspira]

This ROI is a similar concept, but it is not the same. I don't have a video on ROI, but here's a link that shows how to calculate it: www.investopedia.com/terms/r/returnoninvestment.asp Thanks for watching!

[@graymatterrx]

There seems to be an error in the calculation of Flying Bicycles' ROA. 3.2M / 10M = 0.325 or 32.5%?

[@counterpointerz-rocketleag2038]

why are you dividing by 10 million

[@graymatterrx]

@@counterpointerz-rocketleag2038 Wow...I don't even know where I was coming from on that one. His math is so basic I'm ashamed to have even made that statement. There is no error.

[@Miossoty1]

total assets is current + non-current assets?

[@richardbui2874]

Yes

[@michaelwu8153]

ROA favours equity financing over debt financing. Not a great ratio to use.

[@Kusgan4x4]

🙏🏼🤙🏼