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17.5 Analyze and Interpret Return on Assets

Return on Assets (ROA)​

ROA Formula: ROA = (Net Income ÷ Average Assets) × 100

What it Measures:

  • How efficiently assets generate profit
  • Overall profitability
  • Asset utilization

Interpretation​

High ROA:

  • Efficient use of assets
  • Good profitability
  • Effective management

Low ROA:

  • Inefficient asset use
  • Low profitability
  • May need improvement

DuPont Analysis​

ROA Components: ROA = Profit Margin × Asset Turnover

ROA = (Net Income ÷ Revenue) × (Revenue ÷ Assets)

Luxembourg Considerations​

ROA in Luxembourg:

  • Useful benchmark
  • Compare to industry
  • Evaluate performance
  • Support decisions

Luxembourg Compliance Note​

ROA analysis in Luxembourg:

  • Important performance measure
  • Compare to benchmarks
  • Evaluate efficiency
  • Support decisions

Think It Through​

What does ROA tell you about a business? How can it be improved?