Return on Assets (ROA) vs Return on Equity (ROE)
ROA measures how efficiently a company generates profit from its total asset base; ROE measures the return generated on shareholders' equity. ROE is always higher than ROA for any company with debt, because leverage amplifies returns — and risks.
At a Glance
Return on Assets (ROA)
Net income as a percentage of total assets
Return on Equity (ROE)
Net income as a percentage of shareholder equity
Key Differences
- ROE = ROA × Equity Multiplier (Assets/Equity) — leverage inflates ROE above ROA.
- A company with no debt has ROE ≈ ROA; heavy debt can produce high ROE even with mediocre operations.
- ROA is a better cross-company profitability comparison; ROE is better for within-industry capital allocation analysis.
- Banks and financial institutions routinely report both; ROE is typically their primary headline metric.
When to Use Each
Use Return on Assets (ROA) when…
Use ROA to compare operational efficiency across companies regardless of capital structure. It rewards asset-light business models.
Full Return on Assets guide →Use Return on Equity (ROE) when…
Use ROE to assess how well management is deploying shareholder capital. It is the standard metric in the DuPont analysis framework.
Full Return on Equity guide →Formulas
RETURN ON ASSETS (ROA)
ROA % = (Net Income / Total Assets) × 100
(Annual Net Income / Average Total Assets) × 100RETURN ON EQUITY (ROE)
ROE % = (Net Income / Shareholder Equity) × 100
Net Margin × Asset Turnover × Equity MultiplierCharts
Return on Assets (ROA)
Return on Equity (ROE)