**Return on Asset**is

**a type of Profitability Ratio**that determines the

**Return on Total Assets in a Company.**It measures the profitability of a Company relative to its Assets.

$$Return\quad on\quad Asset=\frac { Net\quad Profit }{ Total\quad Assets } $$

**Net Profit = Profit after Excluding all Expenses and Tax = Net Sales – (Cost of Goods Sold + Operating Expenses + Depreciation /Amortization + Interest Expenses + Tax paid)Where,**

- And
**Total Asset = Total Equity + Total Liability** __Return on Asset (ROA) multiplied by 100 provides the ROA in percentage terms.__

## Significance and Interpretation

**Return on Asset**tells the total**earnings of a company with respect to the Total Capital**of the company that**includes Debt as well as Equities,**other Ratio of Profitability do not consider both the types.- A
**high ROA implies that the assets of the company are utilized in a productive manner to maximize the profits. A low ROA implies poor utilization of the assets of the company.**Hence, a high ROA attracts investors. __It must be noted that comparing the performance of two companies based on ROA is useful only if both companies belong to the same sector of the industry.__

### Examples

####
**Example 1: **

**Given below are few details of M/S XYZ Ltd., use them an calculate the Return on Asset for M/S XYZ Ltd.**

Particulars | Amount (in Rs.) |
---|---|

Equity Share Capital | 4000000.00 |

Reserves and Surplus | 1000000.00 |

Long Term Debts | 500000.00 |

Short Term Debts | 1000000.00 |

Net Profit | 1000000.00 |

####
**Solution:**

**Total Equity =**Equity Share Capital + Reserves and Surplus

**⇨**Rs. 5000000.00

**Total Liability =**Long Term Debts + Short Term Debts

**⇨**Rs. 1500000.00

**Total Asset =**Total Equity + Total Liability

**⇨**Rs. 6500000.00

**Return on Asset =**Net Profit / Total Asset

**⇨**1000000 / 6500000

**⇨**2/13

**Hence, Return on Asset (ROA) = 2/13 or 0.1538 or 15.38%**