What does the Return on Assets ratio measure?

The Return on Assets (ROA) ratio is a financial metric that assesses how efficiently a company utilizes its assets to generate earnings. By measuring net income relative to total assets, ROA reflects the management's ability to convert investments in assets into profit. A higher ROA indicates that the company is effective in using its resources to produce income, showcasing efficient asset management.

In this context, the other options focus on different aspects of business performance. While efficiency in managing inventory pertains more to inventory turnover and operational efficiency, and effectiveness of credit collections relates to how well a company collects receivables, these do not directly assess profitability in relation to total assets. Similarly, the percentage of owner’s equity income does not correlate with how assets are utilized to generate profits but instead focuses on equity performance. Therefore, the primary focus of ROA on income generation from total assets makes the first option the most accurate choice.