DECA Retail Merchandising Practice Exam

What does Return on Assets (ROA) measure?

1. Market share based on sales

2. Profitability relative to total assets

3. Customer satisfaction levels

4. Employee performance ratings

The correct answer is: Profitability relative to total assets

Return on Assets (ROA) is a financial metric that assesses a company's profitability in relation to its total assets. It indicates how effectively a company is utilizing its assets to generate earnings. Essentially, ROA is calculated by dividing net income by total assets, providing insight into how well a company is converting its investments in assets into profit. This metric is particularly useful for evaluating operational efficiency and the effectiveness with which a business manages its resources. A higher ROA suggests that the company is more proficient in generating income from its assets, which is a positive indicator for investors and stakeholders. In contrast, the other options focus on different aspects of a business's performance. Market share is concerned with sales figures compared to competitors, while customer satisfaction levels evaluate the customer experience and perceptions. Employee performance ratings relate to the evaluation of staff performance rather than financial metrics. Therefore, the focus of ROA remains squarely on profitability as it relates to the assets employed in the business.