Return on Assets

Return on assets strips out the effect of leverage on the denominator, so it describes the productivity of the assets themselves rather than the cleverness of the financing. It is most useful for banks, where assets are loans and a small change in ROA translates into a large change in ROE through the balance sheet's structure. Because net profit sits after interest while total assets include debt-funded ones, the ratio mixes an equity-holder numerator with an all-capital denominator, which is why ROCE and ROIC are preferred for industrial companies. Old, fully depreciated assets flatter it, since the denominator has shrunk while the earnings have not.