Return on assets

Return on assets asks how hard the asset base is working. Unlike return on equity it takes no view on how those assets were funded, so it cannot be flattered by borrowing — a company that doubles its debt to buy back shares lifts its return on equity and leaves this untouched.

That makes it the fairer comparison between two companies in the same industry with different financing, and a poor comparison between industries, since a bank and a software company own entirely different kinds of thing.

Net income of $150m and total assets of $2,000m.

1. 1150 / 2,000 = 0.075.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Judge it against the industry. Banks run low single digits by design; asset-light businesses run far higher.
• Falling return on assets alongside rising assets is a company investing into worse returns than it used to earn.
• Read it beside return on equity. A wide gap between the two is leverage, and the size of the gap is roughly how much.

• It divides a figure earned over a year by a snapshot taken on one day, so a large acquisition late in the year depresses it artificially.
• Historical-cost assets flatter old businesses, whose factories are on the books at a fraction of what replacing them would cost.
• Net income sits below interest while total assets include debt-funded ones, which mixes two perspectives.

Computed as a profitability ratio in the Financials tab, from net income and total assets as filed. It is not part of the scorecard, where return on equity carries the profitability role in the Financial health category and is deliberately read alongside the leverage metrics that would otherwise flatter it.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.