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April 5, 2021 5:19 AM Emily Guy Birken - Forbes Advisor
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April 5, 2021 8:21 PM
Return on assets (ROA) is a measure of how efficiently a company uses the assets it owns to generate profits. Managers, analysts and investors use ROA to evaluate a company’s financial health.
What Is ROA?
Return on assets compares the value of a business’s assets with the profits it creates over a set period of time.
If that sounds abstract, here’s how ROA might work at a hypothetical widget manufacturer. The company owns several manufacturing plants, plus the tools and machinery used to make widgets. It also maintains a stock of raw materials used in widget production, plus inventory comprising unsold widgets. Then there’s the unique widget designs it’s created, and cash and cash equivalents it keeps on hand for business expenses. Collectively, these are the widget manufacturer’s assets. The money it earns from selling widgets, minus the cost of materia
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