ROA calculator and formula

Return on assets asks what the whole balance sheet earned this period, before you ask how that return was split between lenders and owners:

$$ROA = \frac{\text{Net income}}{\text{Assets}}$$

On $45,000 of net income against $800,000 of assets, ROA is 5.625 percent. The same sheet's equity is $300{,}000$, so ROE is 15 percent. The gap is the equity multiplier: $5.625 \times 2.67 = 15$ once both are the two-decimal printings of $8/3$ and the 5.625 percent.

The calculator on this page is that one division. DuPont analysis writes the same 15 percent as margin times turnover times the multiplier. This page stops at assets.

Keep assets at $800,000. Raise net income to $60,000. ROA rises to 7.5 percent. The asset base did not shrink. The year earned more after interest.

That 7.5 percent sits on the less-borrowed DuPont sheet: equity $600{,}000$, multiplier 1.33, ROE 10 percent. $7.5 \times 1.33 = 10$. A higher ROA and a lower ROE can live on one sheet, because the multiplier fell faster than the asset return rose.

Net income $80,000 on $500,000 of assets is a 16 percent ROA. Equity on that sheet is $400{,}000$, so ROE is 20 percent. The multiplier is 1.25, and $16 \times 1.25 = 20$.

A higher ROA can be a more profitable year, or a smaller asset base under the same profit. Asset turnover is the sales-over-assets piece. This page does not see sales. It sees the residual profit over the stock of assets.

It is not ROE, not ROIC, and not a market-value return. Net income is after interest, so a heavier coupon lowers ROA even if the operations did not change. ROIC takes the financing out by using NOPAT and invested capital.

The three sheets are 5.625 percent on $45,000 over $800,000, 7.5 percent on $60,000 over $800,000, and 16 percent on $80,000 over $500,000. This is educational material, not financial advice.