Question

How do you calculate ROA using EBI/average total assets? Use an example please

Answer 1

Return on assets is calculated by dividing net income by average total assets. ROA indicates how much the company earns a profit by investing in total assets. it also indicates the ability of a company's investment in total assets to generate income.

ROA = net income / average total assets

average total assets = assets at beginning + asets at ending / 2

for example, the company earns net income for current year is 50,000. and opening and closing balance in total assets are 7,00,000 and 750,000 respectively then,

ROA = net income / average total assets

ROA = 50,000 / 725,000

= 6.90%

average total assets = assets at beginning + assets at ending / 2

= 700,000 + 750,000 / 2

= 725,000