Technical definition
A profitability ratio relating period profit to the assets employed to generate it.
How it works
A common formula is net income divided by average total assets. Average assets better match a period result than a single closing balance. Definitions should be kept consistent across periods and peers.
Everyday example
Net income of $12,000 and average assets of $120,000 produce ROA of 10%.
Common pitfall
A higher ROA is not automatically better if it results from underinvestment, asset write-downs or unusually high risk.