when compared with accelerated depreciation, straight line depreciation will produce higher ROA. I always confused about ROA, if use straight line depreciation, asset value will reduce slower than accelerated depreciation, will produce a higher asset value than accelerated depreciation. straight line will also has a higher net income than accelerated decpreciation ROA is so sure to be higher in straight line ? both denominator and nominator got increased. thanks.
Higher net income will offset the higher asset level. In SL depreciation, a company will have higher NI, assets, equity, ROA, ROE.
It makes it less confusing to consider numbers. For example, assume assets of 100 and net income of 10. With straight-line depreciation, assume the depreciation charge is 2. With accelerated, let’s assume it’s 4. With straight-line, ROA = 8/98 = 8.16%. With accelerated, ROA = 6/96 = 6.25%. Straight-line depreciation produces a higher ROA.