The same applies to the second part of the ROA formula

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2. Inaccuracy of the indicator. In special cases, the profitability ratio may not reflect the real situation due to a distortion of one of the parameters. For example, net profit on paper can often be changed to suit the interests of the business during accounting manipulations. In that case, the ROA value may be less reliable.

- the financial assets of the enterprise. ROA is based on the book value of the organization's assets, which may not always accurately reflect their current market value.

Depreciation calculated according to accounting rules, inflation and cambodia phone number list changes in the cost of resources can distort the real picture of the efficiency of their use.

3. No consideration of negative values ​​and temporary circumstances. Sometimes it happens that a company's operating profit is negative over a period. However, this does not mean that the business is completely unprofitable. Profitability can vary in value.


Let's sum it up
The profitability indicator of an enterprise plays a significant role in the tactical and even strategic management of a company. It allows one to understand how effectively the enterprise's capabilities are used to generate income at the present time. In addition, ROA indicates the weaknesses as well as the strengths of some business processes.

This indicator is often used to track the efficiency of internal processes in conjunction with other financial ratios : return on investment, sales, and return on equity.

For business owners, return on assets (ROA) measures how effectively a company converts its resources into high pre-tax profits.