Impact of the Financial Factors on Return on Assets (Roa)

Abstract

Among the many return indicators, Return on Assets (ROA) is mostly used by firms’ managers to measure the performance of a company. This paper studies the factors that influence the ROA. There are different types of financial factors[current asset (CR), quick ratio (QR), cash ratio (CSR), operating profit margin (OPM), net profit margin (NPM), total asset turnover (TAT), current asset turnover (CAT), fixed asset turnover (FAT), account receivable turnover (ART), inventory turnover (IT), inventory holding period (IHP), debt to equity (DTE), debt to total asset (DTTA), debt ratio (DT), return on equity(ROE), earning per share (EPS)] used to measure return on assets (ROA). A multiple linear regression model is used to measure the influence of these factors on ROA where ROA is used as a dependent variable and rest of the factors are used as independent variables. This study has found that most of the factors have positive relationship with ROA; however some of the factors have negative relationship with ROA.