Which financial metric measures profitability relative to a company's assets?

• A. Return on Equity (ROE)
• B. Debt Service Coverage Ratio
• C. Return on Assets (ROA)
• D. Gross Margin

Answer: (C)

This question tests how profitability relates to asset use. Return on Assets measures exactly that by dividing net income by average total assets, showing how much profit is generated from each dollar of assets. It reflects asset efficiency and operational performance, helping compare companies with different asset bases. For example, if net income is 20 and average assets are 200, the ROA is 10%, meaning each dollar of assets earns ten cents of profit. The other metrics don’t capture profitability relative to assets: return on equity ties profits to shareholders’ equity, not total assets; debt service coverage measures the ability to meet debt payments; gross margin compares profit to sales rather than to asset use.