What Is Meant By Return on Assets (ROA)?
Return on Assets (ROA) is a measure of profitability used to evaluate the efficiency of a company’s use of its resources. In the context of logistics and e-commerce, it is used to measure the profitability of an online retail business by calculating the net income generated from its total assets.
Significance of Return on Assets (ROA) in Logistics and E-commerce
ROA is an essential indicator of the efficiency and effectiveness of a logistics or e-commerce business. Here are the benefits of executing the return on assets.
- ROA data gives investors an idea of how efficiently a company converts the money invested into net income.
- A higher ROA indicates that the company uses its resources more efficiently to generate more profit.
- ROA can also measure the efficiency of specific operations, such as inventory management or transportation.
Prerequisites of Return on Assets (ROA) and How It Works
Return on Assets = Net Income/ Total Assets
The formula is used in the following way:
1. Calculating Net income: It is calculated after deducting COGS, general expenses, taxes and interest from the overall sales.
2. Calculating assets: This step includes tangible assets such as buildings, equipment, vehicles, and other assets like patents and trademarks.
3. Calculating ROA: This will give you a percentage representing the return on your logistics operations.
Use Cases of Return on Assets (ROA)
Suppose a logistics company specializing in delivering goods to customers has invested AUD 2 million in assets and generated AUD 1 million in revenue during the same period. The company’s return on assets (ROA) is calculated as follows:
ROA = Net Income / Total Assets
ROA = AUD 1 million / AUD 2 million
ROA = 0.50