ROA (redirected from Roer)

ROA (1)

See: Return on assets

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ROA (2)

See: Right of accumulation

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ROA

1. Right of accumulation. In loaded mutual funds, the right of a shareholder to pay a reduced load (or sales fee) when he/she purchases more than a certain a dollar amount of the mutual fund. The dollar amount is known as the breakpoint. For example, if the breakpoint for a certain mutual fund is $50,000; an investor has the right to reduce the load by, say, half when he/she invests more than $50,000 in the fund. It thus becomes advantageous for the investor to invest $50,000 instead of, say, $45,000, because this will entitle him/her to half the load for the entire investment, and not just for the amount invested past $50,000. Mutual funds that allow investors to buy at just below the breakpoint may run afoul of Financial Industry Regulatory Authority regulations. The right of accumulation is not limited to a single investment; an investor putting two tranches of $25,000 into the above mutual fund will usually find his excess load refunded.

2. Return on assets. A measure of how efficiently a company is using its assets in order to produce a profit. It is calculated by taking the aftertax profit over a given period of time and dividing by the value of the net assets. A higher return on assets is seen as a sign of stronger financial health. See also: Earning power.

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ROA

See return on assets.

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Return on Assets (ROA)

What Does Return on Assets (ROA) Mean?

An indicator of how profitable a company is relative to its total assets. ROA provides an idea of how efficient management is at using its assets to generate earnings. It is calculated, as shown here, by dividing a company's annual earnings by its total assets, with ROA displayed as a percentage. Sometimes this is referred to as return on investment.

Note: Some investors add interest expense back into net income when performing this calculation because they would like to use operating returns before the cost of borrowing.

Investopedia explains Return on Assets (ROA)

ROA shows earnings that are generated from invested capital (assets). ROA for public companies can vary substantially and is industry-specific. Thus, when one is using ROA as a comparative measure, it is best to compare it with a company's previous ROA numbers or the ROA of a similar company. A company's assets consist of both debt and equity, which are used to fund the operations of the company. ROA gives investors some idea of how effectively the company is converting the money it has into net income. The higher the ROA, the more a company earns on a smaller investment. For example, if one company has a net income of $1 million and total assets of $5 million, its ROA is 20%. If another company earns the same amount but has total assets of $10 million, it has an ROA of 10%. In this scenario, the first company is doing a better job of converting its investments into profit. When one thinks about it, this is management's ultimate job: to make wise choices in allocating company resources. Anybody can make a profit by throwing a ton of money at a problem, but very few managers excel at making large profits with a small investment.

Related Terms:
• Assets
• Earnings
• Profitability Ratios
• Return on Equity—ROE
• Return on Net Assets—RONA