Morningstar calculates the return on assets of the industry in which a company operates and assigns a percentile rank to the company depending on how it compares with the industry average. A percentile rank of 10 means the company ranks in the top 10% of companies in its industry in terms of return on assets.
Benefit
Shows how a company’s ROA stacks up against those of similar companies.
Origin
This is calculated in-house by arranging in ascending order, the ROA of the company relative to all other companies in the industry.
For the Pros
ROAs vary quite a bit from industry to industry; some kinds of companies need a lot of assets to generate their profits (banks, insurance companies) and some don’t. By comparing companies with their peers, the ROA percentile rank helps better assess a company’s ROA.
Use the following formula to find companies that have dramatically improved their ROAs. The same equation can be used on ROE:
((ROA Year 1 – ROA Year 5) / ROA Year 5) x 100