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What is the difference between ROE and ROA?

ROE (Return on Equity) Assuming there are no outside equity interests and no preference shares, it is NPAT over Shareholders Funds.

ROA (Return on Assets)? My definition is EBLIT over (Total Assets less Cash and less Interest Bearing Investments).

ROE measures the return to shareholders money in the business. The use of debt can affect it. Both ways - amplify it or reduce it. You can measure the effect of debt using the Financial Gearing Profitability Ratio.

To the extent that ROA is different, it will reflect the effect of use of debt. However, there are other factors related to the difference between EBLIT and NPAT - especially tax rate. Some other factors are large acquisitions, revaluation of assets.

ROA measures the efficiency of operating management. ROE measures the efficiency of capital or financial management. They are really quite separate and not directly comparable without detailed analysis of each situation.

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