How is Return on Assets (ROA) calculated?

Return on Assets (ROA) is a key financial metric that measures a company's ability to generate profit relative to its total assets. It reflects how efficiently a company is using its assets to produce earnings.

The correct calculation method for ROA is to take the earnings after taxes and divide it by the total assets. This formula gives a clear picture of how much profit is generated from each dollar of assets a company possesses. Cumulatively, this measurement aids in assessing the operational efficiency and profitability of a company in relation to its asset base.

The other calculations provided do not accurately capture the relationship between earnings and assets required for determining ROA. For instance, options involving assets being divided by earnings or liabilities do not align with the standard definition of ROA and therefore do not assess the operational performance correctly.