What Is a Good ROA Ratio?
Usually, an ROA ratio, or return on assets ratio, is considered “good” if it is above five percent. However, ROA ratios should be looked at historically for the company being evaluated as well as against companies that are similar in business type and product line when doing peer company comparisons.
An ROA ratio is a measure of how much profit a company generated for each dollar in assets. It is calculated by either multiplying the net profit margin by asset turnover or by dividing the net income by the average assets for the period. The lower this ratio, the more asset-intensive a business is, meaning more money must be reinvested into the company in order for it to continue generating earnings.