San Antonio Business Daily

Accounting question--is return on assets also known as return on investment?

Is return on assets also known as return on investment? Interchangeable terms?

Public Comments

1. Not exactly the same. Let's say you have a $100 profit, $1,000 in assets and $500 in liabilities. Return on assets would be 10%, 100/1,000 Your investment in the company is assets minus liabilities (equity) In this simple example, we could say you started the year with equity of $400, and ended the year with $500. Your average equity for the year was $450. Your return on equity was 100/450 or 22.2%.
2. no they are not the same but kinda close I guess ROA is :An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage ROI is :A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. Hope this helps
3. No they are different things. Return on Assets is Net income / total assets This number tells you "what the company can do with what it's got", i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same industry. ROI is (Net profit - taxes) / Invested Capital This number measures how well a company generates cash flow relative to the capital it has invested in its business.