Return on assets (ROA): formula, worked example and what a good ROA is

Return on assets (ROA) is net income divided by average total assets: the profit a company earns on each dollar of assets it uses. A distributor with net income of $14.4 million on average assets of $210 million has an ROA of 6.86%. ROA also equals net margin times asset turnover, which is why a bank at 1% and a distributor near 7% can both be healthy.

What return on assets measures

ROA = Net income / Average total assets

Average total assets = (Opening total assets + Closing total assets) / 2

ROA asks how hard the whole balance sheet works, whoever funded it. Use the average of opening and closing assets, not the closing figure alone: net income is earned across the year, so it should be divided by the assets in use across the year. A company that grows its assets during the year looks worse than it is on closing assets.

The rows you need

For a US public company all four are in the audited financial statements, which the SEC's guide to reading a 10-K places in Item 8, "Financial Statements and Supplementary Data", including "the company's income statement ... balance sheets, statement of cash flows and statement of stockholders' equity." The balance sheet shows two year-ends side by side, so one 10-K gives both opening and closing assets.

Worked example: five companies

One fiscal year, figures in USD millions. For the bank, total income (net interest income plus noninterest income) stands in for revenue.

The distributor, step by step: average assets are (200 + 220) / 2 = 210. ROA is 14.4 / 210 = 6.86%. Net margin is 14.4 / 480 = 3.00%, and asset turnover is 480 / 210 = 2.2857. In Excel, with net income in C2, opening assets in D2 and closing assets in E2, formatted as a percentage:

=C2/AVERAGE(D2:E2)

For a quarter, annualize the income before comparing with annual figures: =(C2*4)/AVERAGE(D2:E2).

The check: ROA = net margin x asset turnover

ROA = Net margin × Asset turnover = (Net income / Revenue) × (Revenue / Average total assets)

Revenue cancels, so the product must equal net income over average assets exactly. This is the first step of DuPont analysis, which the CFA Institute's financial analysis techniques reading describes as breaking return into "components that are indicators of different aspects of company performance."

Every row closes. The distributor's 3.00% × 2.2857 = 6.857%, the same as 14.4 / 210 = 6.857%; a rounded turnover of 2.29 would give 6.87% and look like a mismatch, so carry the unrounded ratios. Net margin on its own is the subject of net profit margin.

The split shows how differently the same return is earned. The retailer and the SaaS company sit half a point apart on ROA by opposite routes: the retailer keeps 2 cents of every sales dollar but turns its assets 2.75 times a year; the SaaS company keeps 12 cents but turns its assets only half a time. Turnover for a stock-holding business is driven largely by inventory, which inventory turnover ratio measures.

ROA in banking

A bank's assets are mostly loans and securities, funded largely by deposits rather than equity. The balance sheet is huge relative to income, so asset turnover is tiny (0.075 in the example) and ROA is low even when the bank is very profitable on its revenue. A 1% ROA on $12 billion of assets is $120 million of net income.

For the current US figure, use the FDIC's Quarterly Banking Profile. For the second quarter of 2026, the FDIC reported that "FDIC-insured institutions reported a return on assets (ROA) ratio of 1.37 percent" and aggregate net income of $90.1 billion. Quarterly figures move with credit losses and rates, so quote the quarter with the number.

Bank ROA moves with how much of the balance sheet is lent and at what margin. The loan-to-deposit ratio shows how much of the deposit base is lent out, and relationship KPIs for commercial banking set out the measures relationship teams run beneath the bank-level ratio.

What is a good ROA

There is no universal threshold. Compare a company with the same industry and with its own history. As an illustration only, from the business models in the example: banks around 1%, asset-heavy manufacturers and utilities in low to middle single digits, distributors and retailers in the middle single digits on thin margins and fast turnover, and asset-light software companies higher when they are profitable. A bank at 1% and a retailer at 5.5% are not ranked by the gap between them.

Your own trend says more. A distributor whose ROA falls from 6.9% to 5.5% has either lost margin or tied up more assets per dollar of sales, and the DuPont split says which.

ROA vs ROE vs ROIC

ROE = ROA × (Average assets / Average equity). With average equity of 1,200, the bank's ROE is 120 / 1,200 = 10.0%: 1.00% × 10. The distributor, with average equity of 105, has an ROE of 14.4 / 105 = 13.71%: 6.857% × 2. Leverage lifts ROE; it does not change ROA. That is why ROA is the fairer comparison of how well the assets work.

Where it goes wrong

• Closing assets instead of average. A growing company's ROA is understated: the distributor is 14.4 / 220 = 6.55% on closing assets against 6.86% on average, and the manufacturer 36 / 660 = 5.45% against 6.00%.
• A quarter's income over a year's assets. Annualize quarterly income before comparing; bank ROA is quoted on an annual basis.
• Comparing across industries. The bank's 1% and the retailer's 5.5% reflect different balance sheets, not different quality.
• Pre-tax income for one company, after-tax for another. Say which, and keep it consistent across companies and years.
• Goodwill from acquisitions. Large goodwill and acquired intangibles lower ROA with no change in operations; note it, or show ROA excluding goodwill as a second figure.

Computing ROA per business unit from your own files

Company ROA is one number; segment ROA needs net income and assets allocated to each unit. Upload the ledger and the balance sheet by entity or business unit and Covirage's tools compute ROA, net margin and asset turnover per unit, with the DuPont identity checked on every row; the external AI model only explains the table. See Covirage for commercial banking, and margin by account for profitability one level further down. For the ratios around it, see financial ratios and financial KPIs; for a bank's other headline measure, net interest margin.