How is return on assets (ROA) calculated?

Return on assets (ROA) is a key financial metric used to assess how efficiently a company is generating profit from its total assets. The calculation of ROA is done by taking net earnings, which represent the profit after all expenses, taxes, and costs have been deducted, and dividing it by total assets.

This measurement indicates how well a company is utilizing its assets to produce earnings. A higher ROA signifies greater efficiency in managing assets to generate profit, which is a crucial aspect of business performance. By focusing on net earnings relative to the assets that the company owns, stakeholders can evaluate the effectiveness of management and the overall financial health of the organization.

The other options involve different financial metrics that serve different purposes. For instance, net earnings divided by shareholder equity focuses on the profitability in relation to the owner's equity, while net operating profit after taxes divided by invested capital assesses the return on the capital invested in the business. Net operating profit divided by total revenue measures operational efficiency but does not account for asset utilization directly. This makes the chosen calculation of net earnings divided by total assets the most appropriate way to analyze return on assets.