Return on assets (ROA) is used in fundamental analysis to determine the profitability of a company in relation to its total assets. To calculate a company's ROA, divide its net income by its total assets. The ROA formula can also be calculated using Microsoft Excel to determine a company's efficiencies in generating earnings using its assets. Here we illustrate how to use Excel to make this calculation.
- Return on assets (ROA) is an indicator of how profitable a company is relative to its assets or the resources it owns or controls.
- Investors can use ROA to find good stock opportunities because the percentage shows how efficient a company is at using its assets to generate profits.
- Excel is a good platform for easily computing ROA for a company and comparing it with its competitors.
The Basics of Return on Assets (ROA)
Businesses (at least the ones that survive) are ultimately about efficiency: squeezing the most out of limited resources. Comparing profits to revenue is a useful operational metric, but comparing them to the resources a company used to earn them cuts to the very feasibility of that company's’ existence. Return on assets (ROA) is the simplest of such corporate bang-for-the-buck measures. Higher ROAs indicates more asset efficiency.
ROA is calculated by dividing a company’s net income by total assets:
Return on Assets=Total AssetsNet Income
Example of How to Calculate the ROA Ratio in Excel
Let us take an actual historical example to illustrate how to calculate ROA using Excel: On March 31, 2015, Netflix Inc. (NFLX) reported $23.696 million in net income and total assets of $9,240,626,000 for that quarter.
Assume you want to calculate the return on assets ratio of Netflix.
First, right-click on columns A and B, and left-click on "Column Width" to change the value to 28 for each of the columns.
Then, click OK. Enter "Netflix Incorporated" in cell B1.
- "March 31, 2015," into cell B2
- "Net Income" into cell A3
- "Total Assets" into cell A4
- "Return on Assets" into cell A5
- "=23696000" into cell B3
- "=9240626000" into cell B4.
To calculate the ROA, enter the formula "=B3/B4 "into cell B5. The resulting return on assets of Netflix, which appears in cell B5 is 0.0026 or 0.26%.
Comparing Return on Assets of Different Companies
This figure can be compared to a competitor of Netflix, such as Amazon.com. For the same quarter that ended March 31, 2015, Amazon.com reported a net loss of -$57 million and total assets of $50.075 billion.
Right-click on column C and left-click on Column Width and change the value to 28. Click "OK" and enter:
- "Amazon.com Incorporated" into cell C1
- "March 31, 2015" into cell C2
- "=-57000000" into cell C3
- "=50075000000" into cell C4
- "= C3/C4" into cell C5
Amazon.com Incorporated has a return on assets of -0.0011 or -0.11%, which appears in cell C5. In this example, based on the ROA for the quarter ending on March 31, 2015, Netflix Incorporated is better at converting its assets into profit.