1) Return on Assets = Earnings / Assets (or) Profit / Assets

a. Gives you an indication of how much profit is generated per asset

b. Assets are all investments, shareholders capital + short and long term
borrowed funds.
c. Earnings is Net Profit
d. = Earnings/Sales x Sales/Assets = Net Margin x Asset Turnover
e. Assets is generally calculated as average of year beginning and year
end
2) Net Margin is Profit / Sales. What % of sales is profit? Like in IT industry it is
30%, in Apollo 7%
3) Asset Turnover = Sales /Assets. Gives how much sales is generated per asset
investment
4) RoA of less than 5% is Asset heavy (manufacturing) and RoA of 20% plus is
Asset light (software companies or CA / lawyers may be)
5) Return on equity
a. ROEs above 20% are generating solid returns