Return on Assets is a profitability measurement that looks at the amount of resources (e.g. office equipment, real-estate, machinery, etc...) that are required to support running the business. ROA is a leading indicator of managements effectiveness in generating profits from a company's assets.
Return on Assets = Net Income / Total Assets
Let's say Company A has a net income of $1000 and total assets of $15000.
$2500/$15000= 16.67% ROA. This means that Company A is earning 16.67% on its assets.
The return on assets ratio shows how efficient a company is at using its assets to generate a profit. Generally, the higher to ROA the more profitable the company is.
How do I know if the ROA is within a good range?
It is best to compare a stocks ROA with other companies that are similar or within the same industry in order to understand if the observed stock's ROA is within range of the industry.