How to Calculate ROA: Return on Assets Formula, Examples, and What the Number Actually Tells You
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Key terms
- AssetAnything of value that an individual or company owns, such as cash, investments, real estate, or personal property. Assets are the foundation of building wealth.
- Return on Investment (ROI)A measure of investment profitability, calculated as (gain minus cost) divided by cost, expressed as a percentage. A $1,000 investment returning $1,200 has a 20% ROI.
- Total ReturnInvestment performance including both price appreciation and income (dividends or interest). A stock rising 8% with 2% dividends has a 10% total return.
- EIN (Employer Identification Number)A unique nine-digit number assigned by the IRS to identify a business for tax purposes, similar to a Social Security number for individuals. An EIN is required for businesses that have employees, operate as corporations or partnerships, file certain tax returns, or open a business bank account. Applying for an EIN is free and can be done online through the IRS website, and it is one of the first steps in formally establishing a business.
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