Accounting

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What is the correct formula for finding the return on assets (ROA)?

ROA = Net Income / Total Assets

or

ROA = Net Profit / Average Total Assets

I'm getting conflicting information on whether I should take the sum of the assets or find the average of all the assets.

  • Accounting -

    I'm thinking the answer is:

    ROA = Annual Net Income / Average Total Assets

    Please correct me if I'm mistaken.

  • Accounting -

    ROA = net income/total assets

    is your formula.

  • Accounting -

    Average Total Assets are calculated in the equation if you have a balance sheet with a beginning balance of say 10,000 and an ending balance of 30,0000. You will add those two numbers then divide by 2. (10,000 + 30,000)/2

    So, if you have a net income of 50,000 then
    ROA = 50,000/((10,000 + 30,000)/2) = 250%

  • Accounting -

    Thanks for your help, JW! I appreciate it.

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