Glossary
Return on Assets (ROA)
Net income as a percentage of total assets.
ROA = Net Income / Average Total Assets × 100%. Unlike ROE, ROA is not inflated by leverage — it shows how productively a firm uses every dollar on its balance sheet, regardless of how that balance sheet was funded.
Banks and insurers run with low ROA (1–2%) because their balance sheets are dominated by funding-related assets; asset-light software firms can clear 20% because their balance sheets are minimal.
ROA is the cleanest cross-sector productivity comparator when paired with ROE — a wide gap between the two flags heavy debt financing rather than underlying operating excellence.