Return on Assets (ROA)

Return on assets is net income divided by total assets — profit generated per dollar of everything the company controls, regardless of whether it was funded by shareholders or lenders. Because assets always equal or exceed equity, ROA is always the same or lower than ROE.

ROA is the leverage-proof cousin of ROE. Debt inflates ROE by shrinking the equity denominator, but it cannot inflate ROA, since borrowed money shows up as assets too. A wide gap between the two measures how much of the equity return is manufactured by borrowing.

Benchmarks vary by asset intensity: banks live around 1%, capital-heavy manufacturers around 3-6%, and asset-light software companies can clear 15%. Compare within the sector or not at all.