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What is a good ROA? A "good" ROA depends on the company, the time frame of the calculation, and a few other factors. "It's all relative," says Lynch. "Better than your competition is what I'd aim for. Generally, you would compare competitive companies or industries." As a benchmark, though, an ROA of 5% or better is generally considered to be acceptable. "Generally speaking, an ROA of 5% or better is considered 'good,'" Katzen says. "But it is important to consider a company's ROA in the context of competitors in the same industry, the same sector and of similar size." What does ROA mean? ROA is one way to measure an individual company's performance, by seeing if the ratio has been increasing or decreasing over time. A rising ROA indicates improving efficiency, while an ROA that is falling suggests a company might be spending too much on equipment and other assets relative to the profits it is earning from those investments. Investors or managers can use ROA to assess the general health of the company to see how efficiently it's being run and how competitive it is. Investors often use ROA in deciding whether to put money into a company and evaluate its potential for returns relative to others in the same industry. "ROA is used by investors to see how a company's profitability, relative to its assets, has changed over time and how it compares to its peers," says Michelle Katzen, managing director at HCR Wealth Advisors. "The ROA is one indicator that expresses a company's ability to generate money from its assets."
