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Explanation: Return on Assets (ROA) is a financial metric that measures a company’s ability to generate profit from its assets. It indicates the efficiency with which a company utilizes its assets to generate earnings. ROA is calculated by dividing the company’s net income by its total assets and is expressed as a percentage. A higher ROA indicates better asset utilization and profitability.
Example: TCS has an ROA of 30.42% in FY23, which means that for every rupee of assets owned by the company, it generates a profit of approximately 30.42 paise. This high ROA suggests that TCS effectively utilizes its assets to generate profits, reflecting strong operational efficiency and profitability. Investors and analysts often use ROA to assess a company’s management effectiveness in generating profits relative to its asset base. Comparing ROA across companies and industries helps in evaluating relative performance and identifying potential investment opportunities.
You can view the ROA for any company on Radar under Profitability Ratios in the Ratios section.