Return on Assets (ROA)

What is Return on Assets?

ROA measures how much profit you generate for every dollar of assets on your balance sheet. It answers: how efficiently are you using what you own to make money?

Why ROA Matters for Founders

For asset-light SaaS businesses, ROA is typically high because you generate significant revenue from minimal physical assets. Your primary assets are intellectual property and code, which may not even appear on the balance sheet.

For ecommerce founders with inventory, warehouses, and equipment, ROA reveals whether your capital-intensive operations actually generate sufficient returns. Low ROA might mean you are tying up too much cash in inventory that sits unsold.

Interpreting ROA

Higher is better. A 15% ROA means every dollar of assets generates 15 cents in profit. Compare against industry benchmarks since capital intensity varies dramatically between SaaS and ecommerce.

Your ecommerce company has:

• Net Income: $200,000
• Total Assets: $1,000,000 (inventory, equipment, cash)

ROA = ($200,000 ÷ $1,000,000) × 100 = 20%

Every dollar of assets you own generates 20 cents in annual profit. That is solid efficiency for an ecommerce operation.