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Return on Assets, or ROA, is often viewed as a test of management's ability to earn a fair return on monies supplied from all sources. The income value to be used in this calculation is the income before deducting interest expense, since interest is a payment to creditors for money used to acquire assets.
The income value is reflective of all investments that exist throughout the year. For that reason, income should be analyzed relative to the average investments during the year. Therefore, the calculation for Return on Assets is as follows:
Net Income / Average Investment in Assets |
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