Fundamental Glossary / Profitability Metrics
Return on Assets (ROA)
Profit relative to total assets. It shows how hard the asset base works.
Formula
PAT / average total assets. Some analysts use EBIT x (1 - tax rate) so the return is not reduced by interest.
What it means
ROA is lower than ROE whenever the firm has liabilities, because assets are larger than equity. Banks have low ROA and high ROE because the balance sheet is mostly other people's money.
It is a useful cross-check in asset-heavy industries. A rising asset base that does not lift profit shows up immediately as a falling ROA.
How to read it
Compare ROA inside an industry. A capital-light firm should convert a modest asset base into a high ROA. If it does not, the "light" model is not actually light, or the margins are weak.
What to watch
Off-balance-sheet assets, the old lease treatment, and recent revaluations change the denominator. After a large acquisition, average assets and a partial year of profit will not match. Use a full year.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.