How to Measure Return on Assets on a Balance Sheet
Assets such as equipment, machinery and buildings can represent a major cost for some companies. A company needs to use those assets efficiently to generate profits to remain competitive. You can measure how well a company is doing this by calculating its return on assets (ROA), which indicates how much profit a company is generating for every dollar it has invested in assets. ROA equals a company's total net income over the past 12 months divided by its average total assets for the same period, expressed as a percentage. For example, a company with a 10 percent ROA generates 10 cents in profit for every dollar of assets.
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Things You'll Need
- Company's four most recent 10-Q quarterly reports
- Company's most recent 10-K annual report
Instructions
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1
Find a company's net income on its income statements for each of its past four quarters. A public company's first-quarter through third-quarter income statements are included in its 10-Q quarterly reports, and its fourth-quarter income statement is included in its 10-K annual report.
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2
Calculate the sum of each of the past four quarters' net income. For example, if the past four quarters produced net incomes of $100 million, $150 million, $125 million and $110 million, the total net income for the past four quarters would be $485 million.
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Find a company's total assets on its balance sheets for each of its past four quarters. A public company's first-quarter through third-quarter balance sheets are included in its 10-Q quarterly reports, and its fourth-quarter balance sheet is included in its 10-K annual report.
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4
Calculate the sum of each of the past four quarters' total assets. For example, if the assets from each of the past four quarters is $2.1 billion, $2 billion, $2.3 billion and $2.4 billion, the total assets for the four quarters would be $8.8 billion.
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Divide your result by 4 to determine the average total assets for the past four quarters. For example, divide $8.8 billion by 4. This equals $2.2 billion in average total assets for the past four quarters.
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6
Divide the total net income for the past four quarters by the average total assets for the past four quarters to determine return on total assets. For example, divide $485 million by $2.2 billion. This equals 0.22.
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7
Move the decimal in your result two places to the right to convert to a percentage. In the example, convert 0.22 to 22 percent, which is the company's return on assets (ROA).
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Tips & Warnings
You can compare a company's current ROA with its ROA in prior periods to identify positive or negative changes.
You also can compare a company's current ROA with the ROA of its competitors to determine its competitive position.
