What is the correct formula for finding the return on assets (ROA)?
ROA = Net Income / Total Assets
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.
I'm thinking the answer is:
ROA = Annual Net Income / Average Total Assets
Please correct me if I'm mistaken.
ROA = net income/total assets
is your formula.
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%
Thanks for your help, JW! I appreciate it.