Question

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.

Answer 1

I'm thinking the answer is:

ROA = Annual Net Income / Average Total Assets

Please correct me if I'm mistaken.

Answer 2

ROA = net income/total assets

is your formula.

Answer 3

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%

Answer 4

Thanks for your help, JW! I appreciate it.