Return On AssetsThe Return on Assets ratio or ROA is a fundamental indicator that is used to show you how profitable a company is when it is compared to its Assets.
The Formula is ROA= (Net Income)/ (Total Assets) With this formula you will need to use both debt and equity to calculate assets. This is because you want to find out what return the company can make for every dollar they have. If you have a company that had a net income of $2 million and had $10 million worth of assets the ROA would be ($2 million) / ($10 million) or 20%. The higher the number is the better. So a company with a 20% Return on assets can be a better buy then a company with only a 5% ROA. This does not tell the whole story however, to make a good decision you must also compare that number to other companies in the same industry group. If a company has a ROA of 6% but the industry average is 3% then that company is doing well when compared to its competitors making it a good investment. 
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