A high ROA is a good indicator for investors or a serious method of evaluating a company's performance

In the world of stock investing, there are many financial indicators that investors need to understand. But if you had to choose the most important one, most would point to ROA (Return on Assets) because this metric clearly reflects how well a company can generate profits from its resources. Correctly calculating and utilizing ROA is a crucial skill that should not be overlooked.

ROA is not just a number; it tells the real story of a company

First, understand that ROA or Return on Assets is a financial ratio that measures a company’s ability to generate profit from all its resources. Simply put, if a company has many resources but generates little profit, it indicates inefficient use of those resources.

This ROA value is calculated by comparing the company’s “Net Income” with its “Total Assets” during the year. Many investors favor this indicator because it shows how effectively a company manages its resources, helping them decide whether to invest or not.

How to accurately calculate ROA

Basic formula

Calculating ROA is straightforward; you only need this formula:

ROA = (Net Income / Total Assets) × 100%

Both figures are obtained from the company’s annual financial statements, which are publicly disclosed by all listed companies.

Step-by-step calculation

Step 1: Gather financial data
Find “Net Income” and “Total Assets” from the company’s financial statements. Reliable sources include the Stock Exchange of Thailand (SET), Bloomberg, Reuters, or the company’s own website.

Step 2: Plug the numbers into the formula
Divide Net Income by Total Assets, then multiply by 100 to get a percentage.

Step 3: Analyze the result
The ROA indicates how many baht of profit the company makes from every 100 baht of assets.

Real-world examples from Thai companies

Case Study 1: CP All Public Company Limited (CPALL)

CPALL manages numerous convenience stores in Thailand. Let’s see how efficiently it uses its resources.

From its financial statements:

• Net Income: approximately 16,102.42 million baht
• Total Assets: approximately 523,354.33 million baht

ROA of CPALL = (16,102.42 ÷ 523,354.33) × 100% ≈ 3.08%

This 3.08% indicates that for every 100 baht of assets, the company generates about 3 baht in profit. This ratio is typical for retail businesses that operate on high volume but also high expenses.

Case Study 2: Bangkok Dusit Medical Services (BDMS)

BDMS operates in healthcare, a different business model.

From its financial statements:

• Net Income: approximately 12,606.20 million baht
• Total Assets: approximately 141,542.86 million baht

ROA of BDMS = (12,606.20 ÷ 141,542.86) × 100% ≈ 8.91%

BDMS’s higher ROA reflects higher profit margins and more efficient resource use typical of healthcare services.

What is a good ROA? Comparing across industries

A key point many overlook is that a “good” ROA varies greatly by industry. The acceptable ROA depends heavily on the sector in which a company operates.

ROA benchmarks by industry

Banks and financial institutions:
A ROA of 1-2% is considered good because banks require large assets. Even 1% ROA is respectable.

Technology industry:
ROA of 10-20% or higher, as tech companies typically have fewer assets but high profit margins.

Food and beverage:
A suitable ROA is 5-10%, given the high investments in factories, machinery, and inventory.

Transportation and logistics:
A ROA of 5-15% is appropriate, considering significant investments in vehicles and infrastructure.

Robotics and high-tech industries:
ROA of 10-20% or more, due to high added value and R&D investments.

How investors can use ROA to make decisions

After understanding ROA, what should investors do?

Compare ROA with competitors and industry averages:
A higher ROA than the industry average suggests good management. A lower ROA warrants further investigation.

Track trends over 3-5 years:
An increasing ROA indicates improving management efficiency; a decreasing trend warrants caution.

Combine with other indicators:
Don’t rely solely on ROA. Use it alongside ROE, Debt-to-Equity ratio, liquidity ratios, etc.

High ROA doesn’t always mean a company is good — what you need to know

Limitations of ROA that investors often overlook

Limitation 1: Cannot compare across industries
Comparing a tech company’s ROA of 15% with a bank’s 1.5% is misleading because of different business models.

Limitation 2: Does not reflect profit quality
A company might artificially inflate ROA by cutting R&D or strategic investments, which could harm long-term growth.

Limitation 3: Past data is not future guarantee
A high ROA last year doesn’t ensure the same next year, especially if market conditions change.

Limitation 4: Does not indicate financial risk
ROA doesn’t show how much debt a company has. A high ROA with high leverage can be risky.

Where to find ROA of a company you’re interested in

Method 1:
Visit the Stock Exchange of Thailand (SET) website https://www.set.or.th/, search for the company, go to the “Financial Ratios” tab, where ROA is displayed.

Method 2:
Download the company’s annual report from its website, look for sections like “Financial Ratios” or “Key Ratios” where ROA is often listed.

Method 3:
Use analysis platforms like Morningstar, Investing.com, or local stock analysis websites, which often display ROA automatically.

ROA vs. ROE: Why knowing the difference matters

Once you understand ROA, the next step is to learn about ROE (Return on Equity), as both are often compared.

Basic differences

ROA (Return on Assets):
= Net Income ÷ Total Assets

• Measures how well the company uses all resources (including borrowed funds)
• Reflects overall management efficiency

ROE (Return on Equity):
= Net Income ÷ Shareholders’ Equity

• Measures how well the company uses shareholders’ funds
• Indicates return to shareholders

Example for clarity

Suppose you invest 100,000 baht.

• If ROA is 10%, the company earns 10,000 baht from total assets.
• If ROE is 15%, your own equity earns 15,000 baht.

If the company has debt, ROE can be higher than ROA because leverage amplifies returns but also increases risk.

Summary and tips

ROA is not a comprehensive measure but a valuable tool to assess how well a company manages its resources. A high ROA generally indicates efficient management and value-creating activities.

Most importantly, never rely on ROA alone. Use it together with other metrics, industry knowledge, and long-term trend analysis. Doing so will lead to more confident and sound investment decisions.