What does the return on assets (ROA) ratio measure?

The return on assets (ROA) ratio is a financial metric that assesses how efficiently a company utilizes its assets to generate profit. Specifically, ROA is calculated by dividing net income by total assets, which provides insight into how well a company is converting its investments in assets into net earnings. A higher ROA indicates that the company is more effective at converting its investments into profit, signifying efficient management and operational performance relative to its asset base. This measurement is particularly useful for comparing companies within the same industry, as it highlights differences in asset utilization and operational efficiency.

The other options do not accurately capture the essence of what the ROA measures. Total revenues pertain to the company’s sales but do not provide insights into profitability relative to asset utilization. Equity growth focuses on changes in shareholders' equity, which does not directly relate to how well the company is utilizing its total assets for profit generation. Cash positioning in relation to sales may indicate liquidity but does not directly assess overall profitability from assets, which is what ROA specifically targets.