Return on assets (ROA) is net income divided by average total assets, multiplied by 100. It shows how much profit a business earns from every dollar of assets it owns: CFI's example is that an ROA of 15% means 15 cents of profit for every dollar of assets.
CFI calls ROA a profitability ratio that measures how efficiently a company turns its assets into profit. A higher ROA means the company is better at converting what it's invested in assets into earnings. It's one of the simplest ways to ask whether everything the business owns is paying its way.
ROA = net income / average total assets
CFI gives the formula as ROA = (Net Income / Average Total Assets) x 100. Net income is the net earnings for the period, usually a year. Average total assets is beginning total assets plus ending total assets, divided by two.
For a single period, CFI says you can use ending assets instead: ROA = Net Income / Ending Total Assets. Average assets give a more accurate measure when the asset base changes a lot during the period, and CFI says many analysts prefer the average approach for year-over-year comparisons. Net income here means the bottom line, after every cost, which isn't the same as gross income. Here's the difference between gross and net income if you need it.
CFI's 20% ROA example
CFI's example uses a business with these figures, in US dollars as of October 2026:
| Step (CFI's example) | Figure |
|---|---|
| Net income | $10 million |
| Total assets | $50 million |
| ROA = ($10 million / $50 million) x 100 | 20% |
| Profit per dollar of assets | $0.20 |
So the business earns 20 cents of net income for every dollar of assets invested. CFI calls an ROA of 20% strong performance in most industries. The maths is the same in whatever currency you trade.
Working out ROA from your own accounts
- Take net income for the period from the profit and loss statement.
- Take beginning and ending total assets from the balance sheet and average them.
- Divide net income by average total assets and multiply by 100.
- Compare the result with peers in the same industry.
If you're not sure which report each figure comes from, my guide to the P&L vs the balance sheet walks through both.
ROA benchmarks by sector
CFI gives these general benchmarks:
| ROA range (CFI) | Reading | Typical of |
|---|---|---|
| Below 5% | Typical | Utilities, airlines, manufacturing |
| 5% to 10% | Average | Many established companies |
| 10% to 20% | Strong | Efficient asset use |
| Above 20% | Excellent | Asset-light businesses: software, consulting |
Why a 4% ROA can be good or bad
Here's what the bands don't tell you on their own. CFI says capital-intensive industries naturally show lower ROAs, because they need heavy investment in property, plant and equipment to generate revenue. So a utility company with an ROA of 4% may be doing well for its sector, while a technology company with the same 4% would be underperforming.
CFI's other example makes the same point: a manufacturer's 6% ROA should be judged against other manufacturers, not against software companies achieving 25%. Comparing across sectors, CFI says, is misleading. A low number isn't bad until you know the industry it comes from.
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Who uses ROA and why
CFI lists a wide range of people who watch this ratio, each from a different angle:
- Management tracks it to monitor efficiency, set targets and guide spending on assets, especially in asset-heavy businesses.
- Lenders and credit analysts use it to judge creditworthiness. A business that steadily earns from its assets shows it can service debt.
- Equity analysts use it to compare management effectiveness within the same industry.
- Value investors use it on asset-heavy businesses to check that assets are producing proportional profit, not just piling up.
- Private equity firms look for low ROA against peers as a sign of inefficiencies they can fix.
- Competitors benchmark against each other to spot better practices.
ROA vs ROCE
CFI contrasts ROA with return on capital employed (ROCE): ROCE looks at operating profit relative to the capital employed, while ROA looks at net income relative to total assets. And where ROA measures profit per dollar of assets, the asset turnover ratio measures sales per dollar of assets, so the two work well side by side.
Should you track ROA? My take
ROA tells you whether the cash tied up in your assets is earning its keep. I'd work it out once a year and watch the trend, because a falling ROA is an early sign that you're buying more than you're earning from. But don't panic over a low number until you've checked your industry. A 4% that's normal in your sector beats a 10% you've only got by comparing yourself with the wrong businesses. For the other half of the profit story, your net profit margin is the next ratio to learn.
Frequently asked questions
What is the formula for return on assets?
CFI gives ROA = (Net Income / Average Total Assets) x 100, where average total assets is beginning plus ending total assets divided by two.
What is a good ROA?
CFI says below 5% is typical for asset-heavy businesses, 5% to 10% is average, 10% to 20% is strong and above 20% is excellent, common in software and consulting. Always compare within your industry.
What does an ROA of 20% mean?
In CFI's example, a 20% ROA means the business earns $0.20 of net income for every dollar of assets. CFI calls that strong in most industries.
Why do some industries have a low ROA?
CFI says capital-intensive industries need heavy investment in property, plant and equipment, so they naturally show lower ROAs.
What's the difference between ROA and ROCE?
CFI says ROCE looks at operating profit relative to capital employed, while ROA looks at net income relative to total assets.
