ROA (RETURN ON ASSETS)

A.    Financial Statement

Financial statement is a collection of reports about an company's financial results and condition. It is useful for the following reasons:

1.      To determine the ability of a business to generate cash, and the sources and uses of that cash.

2.      To determine whether a business has the capability to pay back its debts.

3.      To track financial results on a trend line to spot any looming profitability issues.

4.      To derive financial ratios from the statements that can indicate the condition of the business.

5.      To investigate the details of certain business transactions, as outlined in the disclosures that accompany the statements.

Financial statement consist of :

1.      Balance sheet, showing a business's assets, liabilities, and owner's equity or retained earnings.

2.      Income statement, showing the sales and expenses of a business over a period of time.

3.      Cash flow statement, showing the cash in and out of a business over a period of time.

4.      Statement of changes in equity, showing all changes in owner’s equity for a period of time.

5.      Supplementary notes, includes explanations of various activities, additional detail on some accounts, and other items.

B.     Financial Statement Analisys

Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the company.

Financial analysis determines a company's health and stability. The data gives an intuitive understanding of how the company conducts business. Stockholders can find out how management employs resources and whether they use them properly. Governments and regulatory authorities use financial statements to determine the legality of a company's fiscal decisions and whether the firm is following correct accounting procedures. Finally, government agencies, such as the Internal Revenue Service, use financial statement analysis to decide the correct taxation for the company.

C.    Profitability Analisys

One of the most frequently used tools of financial statement analysis is profitability analisys which are used to determine the company's bottom line. Profitability measures are important to company managers and owners. If a small business has outside investors who have put their own money into the company, the primary owner certainly has to show profitability to those equity investors.

Profitability analisys show a company's overall efficiency and performance. We can divide profitability analisys into two types: margins and returns. Ratios that show margins represent the firm's ability to translate sales  into profits at various stages of measurement. Ratios that show returns represent the firm's ability to measure the overall efficiency of the firm in generating returns for its shareholders.

D.  Return on Assets (ROA) or Return on Investment (ROI)

Return on assets (ROA) is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources. ROA is known as a profitability or productivity ratio, because it provides information about management's performance in using the assets of the business to generate income.

The Return on Assets is an important profitability analisys because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit.

Benefit of ROA are:

1.    Tells an investor how much profit a company generated for each Rp 1 in assets,

2.    Measures the asset intensity of a business,

3.    Evaluating the performance of departments or divisions of companies.

The formula of return on assets is:

Net Income is taken from the income statement and total assets is taken from the balance sheet. If the percentage is high, that means better, because the company is doing a good job using its assets to generate sales.

Case study

Using data financial statement of PT Metrodata Electronics Tbk for the years ended December 31, 2010 and 2009.

Year	Net income	Total Assets	ROA (%)
2009	10.064.638.280	1.059.054.196.506	0,95
2010	30.438.567.670	945.242.001.932	3,22

2009      =       10.064.638.280            =  0,95%

                        1.059.054.196.506

2010      =       30.438.567.670            =  3,22%

                        945.242.001.932

The table shows that in 2009, every asset that is used can generate profit of 0,95 % and in 2010, every asset that is used can generate profit of 3,22 %. So the company's profitability has increased.