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ROA vs ROI
What's the difference between ROA and ROI
Article By Antonio James, MIQ
March 5, 2024, 1:15 pm
ROA (Return on Assets) and ROI (Return on Investment) are both financial metrics used to evaluate the profitability of a company, but they focus on different aspects of the business.
Return on Assets (ROA):
- ROA measures how efficiently a company is using its assets to generate profit.
- It is calculated by dividing the net income of the company by its total assets.
- ROA gives an indication of how well management is utilizing the company's assets to generate earnings.
Return on Investment (ROI):
- ROI measures the profitability of an investment relative to its cost.
- It is calculated by dividing the net profit from an investment by the initial cost of the investment.
- ROI is often used to assess the attractiveness of an investment opportunity or to compare the efficiency of different investments.
In summary, ROA assesses how efficiently a company uses its assets to generate profit, while ROI evaluates the profitability of an investment relative to its cost.
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