what is return on average assets roaa 
return on average assets roaa is an indicator used to assess the profitability of a firm s assets and it is most often used by banks and other financial institutions as a means to gauge financial performance sometimes roaa is used interchangeably with return on assets roa although the latter often uses current assets instead of average assets investopedia theresa chiechiunderstanding return on average assets roaa return on average assets roaa shows how efficiently a company is utilizing its assets and is also useful when assessing peer companies in the same industry unlike return on equity which measures the return on invested and retained dollars roaa measures the return on the assets purchased using those dollars the roaa result varies greatly depending on the type of industry and companies that invest a large amount of money up front into equipment and other assets will have a lower roaa a ratio result of 5 or better is generally considered good the ratio shows how well a firm s assets are being used to generate profits roaa is calculated by taking net income and dividing it by average total assets the final ratio is expressed as a percentage of total average assets the formula is r o a a net income average total assets where net income net income for the same period as assets average assets beginning ending assets 2 begin aligned roaa frac text net income text average total assets textbf where text net income text net income for the same period as assets text average assets text beginning text ending assets 2 end aligned roaa average total assetsnet income where net income net income for the same period as assetsaverage assets beginning ending assets 2 net income is found on the income statement which provides an overview of a company s performance during a given time period analysts can look to the balance sheet to find assets unlike the income statement which shows growing balances through the year the balance sheet is only a snapshot in time it does not provide an overview of changes made over a certain time period but at the end of the time period to arrive at a more accurate measure of return on assets analysts like to take the average of the asset balances from the beginning and end of the same period that was used to define net income analysts often use average assets because it takes into consideration balance fluctuations throughout the year and provides a more accurate measure of asset efficiency over a given time period roaa exampleassume that company a has 1 000 in net income at the end of year 2 an analyst will take the asset balance from the firm s balance sheet at the end of year 1 and average it with the assets at the end of year 2 for the roaa calculation the firm s assets at the end of year 1 are 5 000 and they increase to 15 000 by the end of year 2 the average assets between year 1 and year 2 is 5 000 15 000 2 10 000 the roaa is then calculated by taking the company s 1 000 net income and dividing it by 10 000 to arrive at the answer of 10 if the return on assets is calculated using assets from only the end of year 1 the return is 20 because the company is making more income on fewer assets however if the analyst calculates return on assets using only the assets measured at the end of year 2 the answer is 6 because the company is making less income with more assets 