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# Understanding the Basic Concepts of Return on Asset

According to Horne & Wachowicz (2005: 235), ROA is a  measuring tool to assess the overall level of effectiveness  in a company in generating net profit through available assets .  Furthermore, munawir (2007) said that return on assets is a company’s financial ratio related to profitability to measure the company’s ability or effectiveness in making profits or profits by utilizing all assets owned. Cashmere (201 4:201), return on assets is a  financial ratio  that shows  the return  on the amount of assets used in the company’s operations or in other words, the ROA ratio is used to measure the company’s ability to generate net profit using its total assets.

According to Pirmatua Sirait (2017: 142), the definition of Return on Assets (ROA) is  a ratio that describes the company’s ability to make a profit from available resources (assets).  I Made Sudana (2013:22) states that “Return On Assets (ROA) appointsthe ability of a company to  use all assets owned to generate profit after tax. According to Putra and Wirawati (2013), ROA is a ratio that measures the ratio between profit before tax and total assets owned by the company. The higher the ROA level, the better the financial performance, because the return generated is greater. According to Harahap (2013: 305), Return On Asset (ROA) is a ratio that shows how much net profit is obtained when measured by the value of assets by dividing the net profit obtained by the average total assets of the company.

An example of calculating the return on assets is as follows:

PT Mei Bong has a total asset value of around Rp200 million and a net profit of around Rp30 million.

Return on Asset = × 100%

= × 100%

= 0.15 = 15%

PT Mei Jaya has total assets of around Rp150 million with a net income of Rp25 million.

Return on Asset = × 100%

= × 100%

= 0.167 = 16.7%

Mei’s mother has a furniture business in her hometown. After a certain period of time, he posted a net profit of Rp5 million. What is the ROA  of Mei’s mother if it is known that she has assets of Rp20 million?

• Return on Asset = × 100%

= × 100%

= 0.25 = 25%

An example of calculating the return on assets in a company is as follows:

• Year 2021, Mayora Indah (MYOR) has total assets of 037.9 billion with a net profit of Rp1. 987.8 billion.
• Return on Asset = × 100%

= × 100%

= 0.1044 = 10.44%

• Based on the financial statements as of December 31, 2020, the net profit after tax of PT Mei Jaya, Tbk. is IDR 300 million, with total assets of IDR 6 billion.
• Return on Asset = × 100%

= × 100%

= 0.05 = 5%

• PT Mei Bong and PT Mei Jaya are companies in the same sector. PT Mei Bong has a total asset value of IDR 250 million with a net profit of IDR 50 million. Meanwhile, PT Mei Jaya has an overall asset value of IDR 200 million with a net profit of IDR 20 million.
• ROA PT Mei Bong = × 100%

= × 100%

= 0.2 = 20%

• ROA PT Mei Jaya = × 100%

= × 100%

= 0.1 = 10%

References

• Astri and Indarti, 2010. Effect of Net Profit Margin (NPM), Return On Assets (ROA) and Return On Equity (ROE) On Stock Prices Listed In The LQ45 Issuer Index 2008-2010.
• Wulan, Astri, dini and Iin Indarti, (2011). “Effect of Net Profit Margin (NPM), Return on Assets (ROA) and Effect of Return on Equity (ROE) on Stock Prices Listed in the LQ-45 Issuer Index for 20082010 Year”. Journal of Economics and Management. Widya Manggala College of Economics. 