According to Investopedia, the Return on Assets is an indicator of how profitable a company is relative to its total assets.

The main idea of the return on assets is to show how efficient management is at utilizing its assets to generate income. The ROA is calculated by dividing a company's annual earnings by its total assets and is displayed in percentage. The ROA is sometimes called the Return on Investment. FORMULA Return on Asset = Net Income Total Assets CALCULATION Super Limited has a net income of $5 million and total assets of $20 million, its ROA is 25%. Nitro Limited earns the same net income of $5 million and has total assets of $40 million, its ROA is 12.5%. Super Limited has the higher ROA meaning it is better at converting its investment into profit. The ROA generally gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment.

According to Investopedia, the Return on Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The ROE compares a companys profitability to other firms in a particular industry. FORMULA Return on Equity= Net Income Shareholders Equity CALCULATION Super Limited has a net income of $5 million and their shareholders equity totaled $40 million, its ROE is 12.5%. Nitro Limiteds Net Income of $5 million and shareholders equity of $20 million resulting in a ROE of 25%. These results indicate that Nitro Limited having the higher ROE is more efficient generating income on new investment. Investors should compare the ROE of different companies and also check the trend in ROE over time. ROE and ROA are both measures of profitability, though ROE focuses on the return to the owners investment while ROA emphasizes the return on the assets under management.

INSURED DEPOSITORS ROA ROE The return on equity helps to pay financial returns to insured depositors for the use of the business capital. Higher equity returns are more favourable to these depositors than smaller returns.

SHAREHOLDERS ROA ROE

The ROE tells common shareholders how effectively their money is being employed. Shareholders cant expect high returns in the long term if the ROE is low. Companies with low ROE should be handing back profits to shareholders by invoking high payout ratios since retaining earnings to magnify poor performance will destroy value.

BANK MANAGEMENT ROA

The ROA is an indicator on how efciently a bank is being run and is t is intended to measure the operational efciency of the bank ROE ROE that involves the consideration of the bank owners returns on their investment. Management needs to know that the returns made on the initial capital invested is substantial manly to avoid suffering from low income in the future and not being able to pay for the businesses expenses. Management is concerned with the Return on Equity on an investment to determine the amount that will be paid to investors for the use of the capital.