How is Return on Assets calculated?

• A. Net Income / Total Assets
• B. Net Income / Net Worth
• C. Gross Profit / Total Assets
• D. Operating Income / Total Assets

Answer: (A)

Return on Assets shows how much profit a company generates from each dollar of assets. The standard form uses Net Income divided by Total Assets, often using average assets over the period to smooth changes. Net income reflects all costs, taxes, and interest, so this ratio captures overall profitability relative to the assets the company uses. This is why the option using net income over total assets is the best choice. Using net income over net worth would be return on equity, not asset efficiency; gross profit over total assets ignores many expenses and taxes; and operating income over total assets uses earnings before interest and taxes, not after all costs.