Return on assets (ROA)
Returns on capitalNet income earned per dollar of total assets.
Formula
ROA = net income ÷ total assets
Why it matters
ROA asks how much profit the whole asset base generates, regardless of whether those assets were funded by equity or debt. Because it cannot be inflated by leverage, it is a useful check on a flattering ROE: if ROE is high but ROA is low, borrowing is doing the work. It also exposes capital intensity — a factory-heavy business needs far more assets per dollar of profit than a software company.
What good looks like
Above 10% is strong for a non-financial company. 5–10% is decent. Below 5% indicates an asset-heavy or low-margin model. Compare ROE and ROA together: a large gap between them is a direct read on how much leverage the company runs.
Caveats
Banks and insurers naturally run ROA of 1–2% because their business is holding financial assets — the metric is not comparable to industrial companies. Asset-light companies that lease rather than own, or that expensed their most valuable assets (brands, software, research) years ago, show inflated ROA. Goodwill from acquisitions sits in assets and drags the ratio down even when the acquired operations perform well.