Return On Assets (ROA)

Retrun On Assets is a very important tool to measure what kind of return investors get on their money.
- This has a stronger effect on: 1) The cash flows to the shareholder, and 2) Whether the company has opportunities to grow going forward.
- In growth industry, company having higher ROA is better than other company in same industry. In stagnant industry this may be less useful.
- Investor often see growth in company but fail to consider cost for that growth. All companies require investments in assets in order to support growth, whether it's in the form of fixed assets, working capital, or the acquisition of other firms. The companies with the best return on assets (or return on invested capital) are the ones that reward their investors with cash, not just paper profits.