{"id":27241,"date":"2024-01-14T16:48:52","date_gmt":"2024-01-14T21:48:52","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=27241"},"modified":"2024-09-02T18:00:39","modified_gmt":"2024-09-02T23:00:39","slug":"return-on-assets-roa","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/","title":{"rendered":"Return on Assets (ROA): Meaning, Calculations, and Excel Examples"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Return on Assets (ROA): Meaning, Calculations, and Excel Examples<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/#Video_Table_of_Contents\">Video Table of Contents:<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/#Return_on_Assets_ROA_Example_Calculation_and_Benchmarking_for_Retailers\">Return on Assets (ROA): Example Calculation and Benchmarking for Retailers<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/#Return_on_Assets_ROA_for_Commercial_Banks_and_Why_It_Matters\">Return on Assets (ROA) for Commercial Banks and Why It Matters<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/#Return_on_Assets_ROA_for_Commercial_Banks_Benchmarking\">Return on Assets (ROA) for Commercial Banks: Benchmarking<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-assets-roa\/#Return_on_Assets_ROA_in_Real-Life_Financial_Models\">Return on Assets (ROA) in Real-Life Financial Models<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Return on Assets (ROA) Definition:<\/strong> Return on Assets (ROA) equals a company\u2019s Net Income in a period, such as 1 year, divided by its average Total Assets over that same period; it measures a company&#8217;s efficiency in generating after-tax profits based on its Balance Sheet.<\/p><\/blockquote>\n<p>Return on Assets measures <strong>how efficiently a company uses its Total Assets to generate after-tax profits<\/strong>.<\/p>\n<p>In other words, if two companies each have $500 million in Total Assets, including items such as factories and inventory, which one generates higher profits on those assets?<\/p>\n<p>Companies that do this more efficiently have higher ROAs and should, therefore, be valued more highly.<\/p>\n<p>Many online sources give examples of ROA for \u201cstandard\u201d companies, such as retail and manufacturing companies, but in real life, <strong>ROA is primarily a metric for financial institutions<\/strong>, such as commercial banks and insurance firms.<\/p>\n<p>That\u2019s because these firms make money <em>directly<\/em> from the Total Assets on their <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/balance-sheet\/\" target=\"_blank\" rel=\"noopener\">Balance Sheet<\/a>, while the link is indirect or nonexistent in other industries.<\/p>\n<h3><strong>Files &amp; Resources:<\/strong><\/h3>\n<p><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Financial-Statement-Analysis\/ROA\/101-05-Return-on-Assets-ROA-Slides.pdf\" target=\"_blank\" rel=\"noopener\">Return on Assets (ROA) &#8211; Presentation Slides (PDF)<\/a><\/p>\n<p><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Financial-Statement-Analysis\/ROA\/101-05-ROA-Comparisons.xlsx\" target=\"_blank\" rel=\"noopener\">Return on Assets (ROA) for Target, Costco, JP Morgan, and Citi (XL)<\/a><\/p>\n<div class='code-block code-block-2' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\" alt=\"PowerPoint Pro\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master Financial Modeling for Investment Banking With <strong>BIWS Core Financial Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Become a financial modeling pro<\/h4>\n              <p>158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 10+ detailed global case studies<\/h4>\n            <p>These include both the theory and the practical applications<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Prepare for your internship or full-time job<\/h4>\n            <p>Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/core-financial-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Core-Financial-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div><\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"Video_Table_of_Contents\"><\/span><strong>Video Table of Contents:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>0:00:<\/strong> Introduction<\/p>\n<p><strong>0:50:<\/strong> The Short Answer<\/p>\n<p><strong>3:05:<\/strong> Part 1: ROA Calculations for Target and Costco<\/p>\n<p><strong>6:32:<\/strong> Part 2: ROA for Banks (JPM, Citi, Wells, and BofA)<\/p>\n<p><strong>9:49:<\/strong> Part 3: ROA in Real-Life Financial Models<\/p>\n<p><strong>10:46:<\/strong> Recap and Summary<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Return_on_Assets_ROA_Example_Calculation_and_Benchmarking_for_Retailers\"><\/span><strong>Return on Assets (ROA): Example Calculation and Benchmarking for Retailers<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>To demonstrate the ROA calculation, let\u2019s look at two U.S.-based retailers: <strong>Target<\/strong> and <strong>Costco<\/strong>, both of which have revenue over $100 billion (with Costco over $200 billion).<\/p>\n<p>Here\u2019s the ROA calculation for each one over several years:<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-28765\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092312\/01-Return-on-Assets-Calculation-1.jpg\" alt=\"Return on Assets (ROA) Calculation\" width=\"1352\" height=\"390\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092312\/01-Return-on-Assets-Calculation-1.jpg 1352w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092312\/01-Return-on-Assets-Calculation-1-300x87.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092312\/01-Return-on-Assets-Calculation-1-1024x295.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092312\/01-Return-on-Assets-Calculation-1-768x222.jpg 768w\" sizes=\"(max-width: 1352px) 100vw, 1352px\" \/><\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-28766\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092338\/02-Return-on-Assets-Comparison-1.jpg\" alt=\"Return on Assets (ROA) Comparison\" width=\"1339\" height=\"625\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092338\/02-Return-on-Assets-Comparison-1.jpg 1339w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092338\/02-Return-on-Assets-Comparison-1-300x140.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092338\/02-Return-on-Assets-Comparison-1-1024x478.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092338\/02-Return-on-Assets-Comparison-1-768x358.jpg 768w\" sizes=\"(max-width: 1339px) 100vw, 1339px\" \/><\/p>\n<p>The\u00a0<strong>key point<\/strong> is that the average ROA in this period is not much different. Yes, Costco is a bit higher in the most recent years (9-10%), but the &#8220;average&#8221; range for both companies is 8-10%.<\/p>\n<p>Costco has lower <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/gross-margin\/\" target=\"_blank\" rel=\"noopener\">gross margins<\/a> and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/ebitda\/\" target=\"_blank\" rel=\"noopener\">EBITDA<\/a> margins, meaning it earns less in profits for each $1.00 in sales, but it also has <strong>higher expected growth rates <\/strong>(~5% rather than ~3%).<\/p>\n<p>Based on these results, we might expect Costco to trade at slightly <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/valuation-multiples\/\" target=\"_blank\" rel=\"noopener\">higher valuation multiples<\/a>.<\/p>\n<p>In reality, though, Costco trades at\u00a0<em>far higher<\/em> valuation multiples than Target:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28767 size-full\" title=\"Return on Assets (ROA) and Valuation Impact\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092351\/03-Return-on-Assets-Valuation-1.jpg\" alt=\"Return on Assets (ROA) and Valuation Impact\" width=\"1271\" height=\"968\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092351\/03-Return-on-Assets-Valuation-1.jpg 1271w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092351\/03-Return-on-Assets-Valuation-1-300x228.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092351\/03-Return-on-Assets-Valuation-1-1024x780.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092351\/03-Return-on-Assets-Valuation-1-768x585.jpg 768w\" sizes=\"(max-width: 1271px) 100vw, 1271px\" \/><\/p>\n<p>Given that these companies have similar growth rates, financial stats, and ROA figures, this is highly unusual and could indicate that Costco is greatly overvalued currently.<\/p>\n<p>ROA is not the sole clue this is the case, but it is one of many factors we can look at.<\/p>\n<p>Reviewing the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/comparable-company-analysis-cca\/\" target=\"_blank\" rel=\"noopener\">comparable public companies<\/a> tells a similar story:<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-28768\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092413\/04-Costco-Public-Comps.jpg\" alt=\"Costco - Public Comps, ROA, and Valuation Multiple Comparison\" width=\"1268\" height=\"256\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092413\/04-Costco-Public-Comps.jpg 1268w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092413\/04-Costco-Public-Comps-300x61.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092413\/04-Costco-Public-Comps-1024x207.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092413\/04-Costco-Public-Comps-768x155.jpg 768w\" sizes=\"(max-width: 1268px) 100vw, 1268px\" \/><\/p>\n<p>Since Costco&#8217;s growth rates, margins, and ROA are all similar to those of the public comps, its <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/valuation-multiples\/\" target=\"_blank\" rel=\"noopener\">valuation multiples<\/a> seem incredibly high.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Return_on_Assets_ROA_for_Commercial_Banks_and_Why_It_Matters\"><\/span><strong>Return on Assets (ROA) for Commercial Banks and Why It Matters<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>This example above is a bit contrived because ROA is <strong>not that important<\/strong> for most companies in industries like <a href=\"https:\/\/mergersandinquisitions.com\/consumer-retail-investment-banking-group\/\" target=\"_blank\" rel=\"noopener\">consumer retail<\/a>.<\/p>\n<p>Many other factors, such as their employees&#8217; performance, relationships with suppliers, and sales &amp; marketing efforts, also affect their <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/net-income\/\" target=\"_blank\" rel=\"noopener\">Net Income<\/a>.<\/p>\n<p>Asset efficiency plays a role, but it\u2019s <strong>less of a direct link<\/strong> than some people claim.<\/p>\n<p>Return on Assets is far more significant in the <strong>financial sector<\/strong> (i.e., <a href=\"https:\/\/mergersandinquisitions.com\/financial-institutions-group\/\" target=\"_blank\" rel=\"noopener\">Financial Institutions Groups (FIG) at banks<\/a>) because many of these companies generate revenue and profits <em>directly<\/em> based on their Balance Sheets.<\/p>\n<p>For example, the major drivers for <strong>commercial banks<\/strong> are Loans and Deposits.<\/p>\n<p>A bank lends money to customers who need to borrow, and on the other side of its Balance Sheet (Liabilities &amp; Equity), it creates Deposits to match these Loans.<\/p>\n<p>But a bank can\u2019t do this indefinitely; it must also maintain a certain amount of <strong>regulatory capital<\/strong> in case too many of its Loans default, resulting in unexpected losses.<\/p>\n<p>Bank regulatory capital is, basically, Common Shareholders\u2019 Equity with some adjustments (<a href=\"https:\/\/breakingintowallstreet.com\/kb\/bank-modeling\/bank-regulatory-capital\/\" target=\"_blank\" rel=\"noopener\">see our detailed tutorial on bank regulatory capital here<\/a>).<\/p>\n<p>Since a bank\u2019s Loans represent over 50% of its Total Assets, and since it earns money <em>directly<\/em> from the Interest Income on these Loans:<\/p>\n<p><strong>-Loans and Total Assets<\/strong> are the key drivers in all bank models.<\/p>\n<p><strong>-Return on Assets (ROA) is critical<\/strong> because a bank using its Total Assets more efficiently will generate higher Net Income.<\/p>\n<p>-And the more Net Income the bank generates, the more \u201c<strong>regulatory capital<\/strong>\u201d (Shareholders\u2019 Equity) it will need to support its Loan Growth<strong>.<\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Return_on_Assets_ROA_for_Commercial_Banks_Benchmarking\"><\/span><strong>Return on Assets (ROA) for Commercial Banks: Benchmarking<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Here\u2019s an example of the ROA calculation and the bank-specific valuation multiples (P \/ E and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/bank-modeling\/price-to-book-value\/\" target=\"_blank\" rel=\"noopener\">P \/ BV<\/a>) for two large, money-center banks (JP Morgan and Citi):<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-28769\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks.jpg\" alt=\"Return on Assets (ROA) for Commercial Banks\" width=\"1697\" height=\"942\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks.jpg 1697w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks-300x167.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks-1024x568.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks-768x426.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092452\/05-Return-on-Assets-Banks-1536x853.jpg 1536w\" sizes=\"(max-width: 1697px) 100vw, 1697px\" \/><\/p>\n<p>JP Morgan\u2019s ROA is in the 1.0 &#8211; 1.5% range, while Citi&#8217;s is in the 0.5 &#8211; 1.0% range, and this difference has existed for many years.<\/p>\n<p>Its margins and growth prospects are also better, so it is no surprise that it trades at <b>a higher P \/ BV (Price to Book Value) multiple.<\/b><\/p>\n<p>It is a bit unusual that the P \/ E multiples for these two banks are similar despite the ROA and growth rate differences, but there may be explanations for that, such as <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/non-recurring-expenses\/\" target=\"_blank\" rel=\"noopener\">non-recurring expenses<\/a>, Gains \/ Losses, or acquisitions \/ <a href=\"https:\/\/breakingintowallstreet.com\/kb\/ma-and-merger-models\/divestitures\/\" target=\"_blank\" rel=\"noopener\">divestitures<\/a>.<\/p>\n<p>Again, ROA is not <em>the only<\/em> factor that explains the valuation differences.<\/p>\n<p>You also look at metrics such as the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-equity-roe\/\" target=\"_blank\" rel=\"noopener\">Return on Equity (ROE)<\/a>, Loan Growth, the Net Interest Margin (NIM), and more.<\/p>\n<p>However, if <em>all these metrics<\/em>, including ROA, are higher for one bank, this bank \u201cshould\u201d be valued more highly in the market (assuming it&#8217;s similar in terms of size and geography to all the other banks in your set of <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/comparable-company-analysis-cca\/\" target=\"_blank\" rel=\"noopener\">comparable companies<\/a>).<\/p>\n<p>If it\u2019s <strong>not<\/strong> valued more highly than similar banks with lower ROA and ROE figures, you may have found an undervalued bank.<\/p>\n<p>Here&#8217;s a graph illustrating the close relationship between ROA and P \/ BV multiples for commercial banks, based on the 4 biggest U.S. banks:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28770 size-full\" title=\"Return on Assets (ROA) vs. P \/ BV Multiples for Commercial Banks\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092515\/06-ROA-vs-PBV-Banks.jpg\" alt=\"Return on Assets (ROA) vs. P \/ BV Multiples for Commercial Banks\" width=\"788\" height=\"476\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092515\/06-ROA-vs-PBV-Banks.jpg 788w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092515\/06-ROA-vs-PBV-Banks-300x181.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/01\/03092515\/06-ROA-vs-PBV-Banks-768x464.jpg 768w\" sizes=\"(max-width: 788px) 100vw, 788px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Return_on_Assets_ROA_in_Real-Life_Financial_Models\"><\/span><strong>Return on Assets (ROA) in Real-Life Financial Models<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In <a href=\"https:\/\/mergersandinquisitions.com\/financial-modeling\/\" target=\"_blank\" rel=\"noopener\">financial models<\/a>, such as <a href=\"https:\/\/mergersandinquisitions.com\/3-statement-model\/\" target=\"_blank\" rel=\"noopener\">3-statement models<\/a> and <a href=\"https:\/\/mergersandinquisitions.com\/dcf-model\/\" target=\"_blank\" rel=\"noopener\">DCF models<\/a>, ROA is rarely a direct driver.<\/p>\n<p>Instead, it\u2019s more of an \u201cinformational metric\u201d that you can use to answer questions such as:<\/p>\n<p>-Do your assumptions translate into <strong>higher efficiency<\/strong> for the company you are modeling?<\/p>\n<p>-Does that <strong>higher efficiency<\/strong> also correlate with higher valuation multiples?<\/p>\n<p>-What <strong>revenue growth and margins<\/strong> are required for a company to achieve an ROA of X%?<\/p>\n<p>Even in commercial bank valuations and <a href=\"https:\/\/mergersandinquisitions.com\/dividend-discount-model\/\" target=\"_blank\" rel=\"noopener\">dividend discount models<\/a>, ROA is used to <strong>cross-check your work<\/strong> rather than a direct input.<\/p>\n<p>If you understand that, you\u2019ll be ahead of the game with Return on Assets in all contexts.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Return on Assets (ROA) equals a company\u2019s Net Income in a period, such as 1 year, divided by its average Total Assets over that same period; it measures a company&#8217;s efficiency in generating after-tax profits based on its Balance Sheet.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-27241","biws_kb","type-biws_kb","status-publish","hentry","kb_category-financial-statement-analysis"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/27241","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=27241"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}