What do ROA and ROE each measure?
- ROA already includes the effect of leverage, while ROE strips leverage out to isolate operating results
- ROA captures the return to shareholders, while ROE measures how efficiently assets are used across the firm
- ROA is profit per dollar of assets (financing-neutral); ROE is profit per dollar of equity (with leverage)
- Both are cash-flow measures, dividing operating cash flow by assets and by equity respectively
- They measure the same thing; the labels differ only by which financial statement supplies the figure
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