return on assets
First off, the return on equity or ROA of a company measures how profitable a company is relative to it assets or the resources it owns. This measure helps judge how efficient a company is at using the assets of the company to produce earnings. Another way to think about it, is are the assets I have helping me improve my company's profit, and this is one of the crucial things that a company's Generally, you use this metric to only compare stocks in the same sector or industry. There are many different ways to calculate the return on assets of a company. Some of which include, net income divided by assets, net income plus interest minus tax savings divided by assets, and operating profit divided by assets. Now, one thing to understand is that the higher the ROA, the better it is. Another thing to consider, is that this metric does not take into consideration how this growth was financed. In other words, the company could have just taken on a lot of debt to obtain some of these assets, however that is not the focus of this lesson. Whichever way you do it, you are going to get some sort of percentage, but because there is some much variation, I generally like to use the ROA that Yahoo Finance provides us with.