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How is return on assets determined? This is for a financial analysis class.Please respond with at...

How is return on assets determined?

This is for a financial analysis class.Please respond with at least 130 words. Thank you!

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Answer #1

Return on assets is measured as change in value of assets. It is reflection of how the prices of an asset have increased or decreased during a specific time period due to generation of revenue or loss.

It is calculated as a ratio of net income generated in given period of time to the total value of assets.

Return on Assets= (Net income generated/ total value of assets)

It shows a percentage of the profitability of the company during a specified time period .A company with high return on assetb is seen as a good potential investment opportunity by investors.

A company with high return on equity is also preferred by financial institutions who believe in lending money to a high ROA firm as they believe that the repayment capabilities of such companies are very high as they are generating a Return on asset which is higher than cost of debt.

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