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Return on assets (ROA) is one of the profitability ratios used to gauge the efficiency of firm to generate income from its assets. ROA shows the relationship between net income and total assets of a company.

Higher degree of this ratio is always considered favorable and shows the strength of management to generate profit by utilizing its assets.

Formula for the calculation of return on assets (ROA):

Return on assets is calculated by dividing the net income by total assets. Therefore, the formula which can be used in performing the calculation is

Return on assets = Net Income/ Total assets

For better picture, total average assets is used instead of total assets.

Return on assets = Net Income / Average assets

Average assets is calculated by taking the average of assets at the beginning and assets at the end of the period.

Average assets = (Assets at the beginning + Assets at the end) / 2

Balance sheet is one of the important financial statements which a joint stock company has to prepare at the end of every financial year. It is a summarized report of assets, liabilities and shareholders’s funds of a company. The balance sheet is used to access the current position of a company.

It is mandatory for every public (limited) company in India to disclose its balance sheet to general public but not for private companies to do so.

A balance sheet has two sides – Liability and asset.

On the left hand side i.e. liability side, a company lists all of its liabilities including share capital, reserve and surplus, secured & unsecured loans and current liabilities & provisions.

On the right hand side i.e. asset side, a company lists all of its assets including fixed assets, investments, current assets, loan & advances and miscellaneous expenditures.

Format of a horizontal balance sheet:

 

Balance sheet of XYZ Ltd.

As on 31/03/20..

Liabilities	Figure for the current year (Rs.)	Assets	Figure for the current year (Rs.)
Share Capital: Authorized … shares of Rs … each Preference Equity Less: Calls unpaid Add: Forfeited shares		Fixed Assets: Goodwill Land & Building Leasehold premises Railway sidings Plant and machinery Furniture Patents and trademark Live stock Vehicles
Reserve and Surplus: Capital reserve Capital redemption reserve Securities premium Other reserves P&L A/c		Investments: Government or trust securities, shares, debentures, bonds etc.
Secured Loans: Debentures Loans and advances from banks Loan and advances from subsidiaries Other loan and advances		Current Assets, Loans and Advances: Current Assets: Cash and bank balance Accrued interest Stores and spare parts Loose tools Stock in trade WIP Accounts receivable Loans and Advances: Advances and loans to subsidiaries Bills receivables Advance payments and unexpired discounts
Unsecured Loans: Fixed deposits Loan and advances from subsidiaries Short term loans and advances Other loans and advances		Miscellaneous – Expenditure: Preliminary expenses Discount on issue of shares Other deferred expenses
Current Liabilities and Provisions: Current Liabilities: Accounts payable Accrued expenses Short term notes Current portion of long term notes Provisions: For taxation For dividends For contingencies For PF Schemes For insurance, pension and other such benefits		P & L A/c (debit balance: If any)
Total		Total

 

It should be noted that the “total” of both the sides always remains equal.

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