ROE and ROA are two indicators of the financial performance of a company. They are used to find a company’s financial health and its profitability. Since both of them measure the return on investments, ROE and ROA may be confusable. ROE is the abbreviation of Return on Equity. It means that the net profit is divided by total equity. The result is expressed in percentage. ROA, on the other hand is the abbreviation of Return on Assets. It is a measure used to determine how efficiently a company uses its assets. It means if the company gets better profits, it performs more efficiently. The ratio of ROA also tells how intensive a company is. A low ROA with huge assets means poor asset usage. So, in case there is no debt, the shareholder’s equity and total assets remain the same. But if the company takes a loan, ROE becomes bigger than ROA.
