If Randolph co. has sales of $3,000,000, net income of $200,000, and total asset turnover of 1. 5x
Return on Assets:
ROA = Profit margin x Asset turnover
ROA=($200,000/$3,000,000) x 1.5 = 0.099
Return on assets compares the asset worth of a company with the profits it makes over a predetermined time period. Managers and financial analysts use return on assets as a measure to assess how well a company is utilizing its resources to generate profits.
An effective indicator for assessing a single company's performance is return on assets. When a company's ROA increases over time, it shows that it is extracting more profit from every dollar of assets it owns. Typically, a ROA of 5% or above is seen as good; a ROA of 20% or higher is regarded as great.
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