Return on Assets (Banks)
ROA
Return on assets measures a bank's net profit against its total assets, which for a bank means the loans it has given out.
Formula
ROA
ROA (%) = Net Profit ÷ Average Total Assets × 100
Benchmark: 1% is the minimum; around 2% is very good
Reading the number
A bank's balance sheet is inverted compared with a normal company. Its assets are the loans it has given out, because those earn the income. Its liabilities are the deposits it has taken from you, because it must return that money; it borrowed it.
Below 1 percent ROA there is no point running a bank. Around 2 percent is very good. Because a bank's equity is a thin slice of its balance sheet, ROA is a fairer measure of lending quality than ROE, which leverage can flatter.
Indian example
Related ratios
Glossary terms
From the research
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