Return on assets (ROA) and return on equity (ROE) are indicators of how successfully a firm manages its financial resources. However, one of the most significant contrasts is how they approach a company’s debt. ROA considers a company’s leverage or how much debt it owes. After all, any money it borrows to operate its activities is included in its overall assets.
ROE, on the other hand, only looks at a company’s return on its equity and not its debt. As a result, although ROE does not account for a company’s debt, ROA does. The more a company’s leverage and debt, the higher its ROE will be compared to its ROA. Due to the mentioned factor, as a company takes on more obligations, its ROE will do better than its ROA.
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