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# Praxair, Inc. Return on Assets: 8.0 ( as of Mar13)

* All numbers are in millions except for per share data PX 10-Y Financials »

### Definition

Return on Assets (ROA) is calculated as:

Return on Assets (ROA) = Net Income / Total Assets

In the calculation of annual return on assets, the net income of the last fiscal year is used. The Total assets are from the end of year data. Strictly speaking, average total assets over the fiscal year should be used. In calculating the quarterly data, the result is multiplied by 4 to get the annualized rate. Return on assets is displayed in the 10-year financial page.

### Formula

Return on Assets (ROA) = Net Income / Total Assets

#### Praxair, Inc. ROA Calculation

* All numbers are in millions except for per share data

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### Explanation

Return on assets (ROA) measures the rate of return on the total assets (shareholder equity plus liabilities). It measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. ROAs can vary drastically across industries. Therefore, return on assets should not be used to compare companies in different industries. For retailers, a ROA of higher than 5% is expected. For example, Wal-Mart (WMT) has a ROA of about 8% as of 2012. For banks, ROA is close to their interest spread. A banks ROA is typically well under 2%.

Similar to ROE, ROA is affected by profit margins and asset turnover. This can be seen from the Du Pont Formula:

Return on Assets (ROA)
= Net Income / Total Assets
= (Net Income / Sales) x (Sales / Total Assets)
= Net Profit Margin x Asset Turnover

### Beaware

Like ROE, ROA is calculated with only 12 months data. Fluctuations in the companys earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective. ROA can be affected by events such as stock buyback or issuance, and by goodwill, a companys tax rate and its interest payment. ROA may not reflect the true earning power of the assets. A more accurate measurement is Return on Capital (ROC).

Many analysts argue the higher return the better. Buffett states that really high ROA may indicate vulnerability in the durability of the competitive advantage.

E.g. Raising \$43b to take on KO is impossible, but \$1.7b to take on Moodys is. Although Moodys ROA and underlying economics is far superior to Coca Cola, the durability is far weaker because of lower entry cost.

### Related Terms

Return on Capital, Return on Equity, Total Assets, Net Income
* All numbers are in millions except for per share data

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Dec03Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12
ROA

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Dec10Mar11Jun11Sep11Dec11Mar12Jun12Sep12Dec12Mar13
ROA

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