Profitability measures such as return on assets (roa) and return on equity (roe) are accounting rates of return.
<h3>What is the ROA and ROE?</h3>
Profitability ratios measure the ability of a firm to generate profits from its asset. Examples of profitability ratio are return on equity, return on assets, gross profit margin, return on invested capital and return on capital employed.
Return on equity calculates the efficiency with which a firm generates returns to its shareholders. The higher the return on equity is, the more efficient it is for the firm to generate income for its shareholders. Return on equity is the ratio of net income to total equity.
Return on equity = net income / average total equity
The return on asset is used to determine how much profit a firm can generate from its assets. Return on asset is net income divided by total assets. It is an example of a profitability ratio. The higher the return on assets, the more efficient it is in generating income from its assets.
Return on total assets = Net income / average total assets
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