Return on Assets question?
If my companies return on assets is 15.44% is that good? and why?
- Anonymous1 decade agoFavorite Answer
Here is a good reference for finance terms and definitions
What Does Return On Assets - ROA Mean?
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
Note: Some investors add interest expense back into net income when performing this calculation because they'd like to use operating returns before cost of borrowing.
Investopedia explains Return On Assets - ROA
ROA tells you what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company.
The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. For example, if one company has a net income of $1 million and total assets of $5 million, its ROA is 20%; however, if another company earns the same amount but has total assets of $10 million, it has an ROA of 10%. Based on this example, the first company is better at converting its investment into profit. When you really think about it, management's most important job is to make wise choices in allocating its resources. Anybody can make a profit by throwing a ton of money at a problem, but very few managers excel at making large profits with little investment.
Here's a more in-depth answer to your question
- Anonymous5 years ago
The higher the risk the higher the POTENTIAL return is. So chasing the best return of any recent investment is risky - The ways to reduce your risk is to diversify your investment and put time on your side. What is your goal? Need?. If it is to invest for retirement and that is a long way off then you want to have a decent percentage in equity (stock) mutual funds. I would recommend the Vanguard Star fund or Life Strategy Moderate Gowth. (They have about 60% in stocks and the rest in bonds or money markets). These are investments that provide potential for a good return over a long time. If you are looking to use it to buy a house in a few years then you don't want to invest you want to save. Buy some CD's or Vanguard Money Market Prine and don't risk your money. You mignt consider reading up on investments. I recommend The Bogleheads guide to investments. Watch out for get rich ideas - they make someone rich but probably not you!! Good Luck
- 1 decade ago
It depends on how much risk you were exposed to and what your cost of capital is, but if you're business is, say, traditional retailing, then yes, that's a pretty good return because it is higher than most standard businesses return.