Enjoyed this video? Then subscribe to the channel, and watch an example of a Return On Assets calculation next: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Just to add, that ROA is Net Income divided by Average Total Assets. Key word is Average. Remember that Income Statement items are items for a period of usually 1 year vs the Balance Sheet items which are items up to a specific point in time. Therefore, we need to take the average of balance sheet accounts when calculating the ratios with Income Statement items. Examples: ATO = Sales / Avg TA; ITO = COGS / Avg Inventory; ROE = NI / Avg TE; ROA = NI / Avg TA
Good point! You can take a simple two-point average (year opening balance and year ending balance), a five-point average (year opening balance and 4 quarter-end balances), or even a thirteen-point average (if you have access to internal management reporting data: year opening balance and 12 month-end balances).
ROA seems vital, but is there some instances where ROA is less critical. As an example, companies with a lot of assets, but not necessarilly a strike against them moving forward?
Agree! Return On Assets is a nice formula to compare historical performance of companies, but ROA gives you no "guarantee" of future performance. When you calculate ROA for a company, I would encourage you to analyze whether there were any "unusual items" in the returns, or any "unusual items" in the assets. See my ROA calculation example: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Hello fellow South Park fan! A company should aim to improve its margins (Return On Sales) as well as its velocity (Asset Turnover) year-over-year. You could benchmark Return On Sales, Asset Turnover and Return On Assets between similar companies in an industry, or compare them for companies in very different industries. Example: telecom company Verizon versus retailer Walmart ua-cam.com/video/2j8bfR8KqJ0/v-deo.html The Return On Assets number can also be impacted by "unusual items" that are specific to a company. For example, Apple Inc (a company that is financially very healthy) has a very significant investment portfolio (cash and marketable securities) which "distorts" (reduces) the ROA calculation: ua-cam.com/video/DQgEoz8izxY/v-deo.html Hope this helps!
Thank you very much! I think you will like the related video as well where I calculate and compare ROA for Walmart and Verizon: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Hello, thanks for the video is very good but still i need to ask you question. ROA is calculate without Financial expenses right? if it true why we don`t do net income\ operating income ?
ROA is calculated after financial expenses, as you take net income (from the income statement, the bottom line) and divided it by the amount of assets on the balance sheet. Have a look at my income statement tutorial, that might help: ua-cam.com/video/Hq-44PHgAiU/v-deo.html
@@TheFinanceStoryteller I understand this but i d`ont understand why we take the net income becuase it can be "worng" number and if we take the operating income it can be more relible. d`ont you thing so?
Companies listed on the stock market have to comply with the accounting principles and rules of US GAAP (if US based) or IFRS (elsewhere in the world), and are audited by a professional audit firm. That is no guarantee that their numbers are fully correct, but it does help. If you are looking to exclude unusual items (one-offs like the impact of litigation, restructuring, etc.), then you could look at Adjusted Operating Income or Adjusted Net Income. For a discussion of why some people believe that EBIT (Operating Income) or EBITDA is more meaningful than net income, see this video: ua-cam.com/video/nImp51zYcy4/v-deo.html
Normally, a sales tax is applied at a single level - the final transaction between a seller of a product and the buyer of that product, based on the gross sales price of the product. VAT is collected in stages through what is called “the chain of supply”, this is explained in my video on VAT ua-cam.com/video/a6RB4rIxWqI/v-deo.html
That is correct! It's been 4 years since I made that video. How time flies. Here's the link to an example of calculating and analyzing ROA: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html Let's see if you can replicate that calculation for a company of your choice!
![Lp. Сердце Вселенной #60 РОЖДЕНИЕ ЛОЛОЛОШКИ [Финал] • Майнкрафт](http://i.ytimg.com/vi/YoR0pAV9FVQ/mqdefault.jpg)
Enjoyed this video? Then subscribe to the channel, and watch an example of a Return On Assets calculation next: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Just to add, that ROA is Net Income divided by Average Total Assets. Key word is Average. Remember that Income Statement items are items for a period of usually 1 year vs the Balance Sheet items which are items up to a specific point in time. Therefore, we need to take the average of balance sheet accounts when calculating the ratios with Income Statement items.
Examples: ATO = Sales / Avg TA; ITO = COGS / Avg Inventory; ROE = NI / Avg TE; ROA = NI / Avg TA
Good point! You can take a simple two-point average (year opening balance and year ending balance), a five-point average (year opening balance and 4 quarter-end balances), or even a thirteen-point average (if you have access to internal management reporting data: year opening balance and 12 month-end balances).
Thank you so much for sharing this useful data ! Greatly appreciated as always.
Thank you! I have a few related videos in this playlist: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Good as always.👍
Thanks again! 🙂
thank u so much for ur videos
You're welcome, Ankush! Happy to help.
ROA seems vital, but is there some instances where ROA is less critical. As an example, companies with a lot of assets, but not necessarilly a strike against them moving forward?
Agree! Return On Assets is a nice formula to compare historical performance of companies, but ROA gives you no "guarantee" of future performance. When you calculate ROA for a company, I would encourage you to analyze whether there were any "unusual items" in the returns, or any "unusual items" in the assets. See my ROA calculation example: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
@@TheFinanceStoryteller Thank you!
you're a legend
Thank you! ;-)
can you please explain the differences with the variations? When should we use them & what are the pros & cons of each please? Thanks
Hello fellow South Park fan! A company should aim to improve its margins (Return On Sales) as well as its velocity (Asset Turnover) year-over-year. You could benchmark Return On Sales, Asset Turnover and Return On Assets between similar companies in an industry, or compare them for companies in very different industries. Example: telecom company Verizon versus retailer Walmart ua-cam.com/video/2j8bfR8KqJ0/v-deo.html The Return On Assets number can also be impacted by "unusual items" that are specific to a company. For example, Apple Inc (a company that is financially very healthy) has a very significant investment portfolio (cash and marketable securities) which "distorts" (reduces) the ROA calculation: ua-cam.com/video/DQgEoz8izxY/v-deo.html
Hope this helps!
clever and sharp
Thank you very much! I think you will like the related video as well where I calculate and compare ROA for Walmart and Verizon: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html
Hello,
thanks for the video is very good but still i need to ask you question.
ROA is calculate without Financial expenses right?
if it true why we don`t do net income\ operating income ?
ROA is calculated after financial expenses, as you take net income (from the income statement, the bottom line) and divided it by the amount of assets on the balance sheet. Have a look at my income statement tutorial, that might help: ua-cam.com/video/Hq-44PHgAiU/v-deo.html
@@TheFinanceStoryteller
I understand this but i d`ont understand why we take the net income becuase it can be "worng" number and if we take the operating income it can be more relible.
d`ont you thing so?
Companies listed on the stock market have to comply with the accounting principles and rules of US GAAP (if US based) or IFRS (elsewhere in the world), and are audited by a professional audit firm. That is no guarantee that their numbers are fully correct, but it does help. If you are looking to exclude unusual items (one-offs like the impact of litigation, restructuring, etc.), then you could look at Adjusted Operating Income or Adjusted Net Income. For a discussion of why some people believe that EBIT (Operating Income) or EBITDA is more meaningful than net income, see this video: ua-cam.com/video/nImp51zYcy4/v-deo.html
@@TheFinanceStoryteller thank you very much for your help
if the interest expense is included do i have to add it to the profit before dividing it to assets?
Net income is the profit after deducting interest expense.
explain Why Return on Investment rises when asset decrease?
Think through the calculations (particularly what is in the numerator and what is in the denominator), and you will find the answer....
what is the difference between value added tax and sales tax
Normally, a sales tax is applied at a single level - the final transaction between a seller of a product and the buyer of that product, based on the gross sales price of the product. VAT is collected in stages through what is called “the chain of supply”, this is explained in my video on VAT ua-cam.com/video/a6RB4rIxWqI/v-deo.html
it is 2021
That is correct! It's been 4 years since I made that video. How time flies. Here's the link to an example of calculating and analyzing ROA: ua-cam.com/video/2j8bfR8KqJ0/v-deo.html Let's see if you can replicate that calculation for a company of your choice!
Om shanti k good day please find attached