Equity · Core
Return on Assets
Return on assets is net income (or EBIT) divided by total assets — how much profit the whole sheet produces before you celebrate leverage.
Definition
ROA = earnings / average assets. Unlevered versions use EBIT(1−t) in the numerator. Banks’ ROA is small by design (thin margin, huge sheet); a 1.2% bank ROA is a different animal than a 1.2% software ROA.
Why it matters
It is the unglamorous check on ROE. If ROA is weak and ROE is strong, leverage is doing the work.
Case
Two banks print 12% ROE. One has 1.3% ROA and moderate leverage; the other has 0.6% ROA and a taller sheet. The second is a cycle punchline.
How to read it
Match the numerator to the asset base (operating vs financial). For banks, pair ROA with NIM and credit costs, not with a software multiple.
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