Return On Average Assets - ROAA

  

Categories: Investing, Metrics

See: Return on Assets. See: Average Assets.

Companies own stuff. They use this stuff to run their business. Hopefully, the process brings in money, which turns into profit, which they can then use to buy more stuff...or at least to pay for the sushi bar in the executive lounge.

The return on average assets lets companies know how well it's using the stuff it has. It tracks operational efficiency by looking at the amount of profit generated from its assets. The figure is calculated by dividing net income (after taxes) by its total average assets.

The asset figure comes from the firm's balance sheet. Since the number can change over the course of a financial period, the ROAA figure takes an average. Add the total assets at the beginning of the period to the total assets at the end of the period, then divide by two. That calculation gives you the average total assets figure.

The advantage of ROAA versus a similar measure, return on assets, is this averaging. The ROA figure only looks at the asset number from the end of a financial period. ROAA takes into account the change in the total asset amount over time.

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Finance: How does momentum work in inves...1 Views

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and finance Allah shmoop How does Mo mentum work in

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investment returns All right people we have mojo you know

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for a moment way have your groove you invested in

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I'm not here dot com A software company that completely

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anonymous eyes is your presence anywhere on the grid that

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this thing and poof you're gone The company had $50,000,000

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of mouth at all It's marketing for it So it

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had 30,000,000 pre tax and 20,000,000 after tax in earnings

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and traded at 20 times earnings for a $400,000,000 valuation

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at its AIPO But then suddenly it got sued by

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the U S And by Chinese governments to disclose the

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whereabouts of Carmen Sandiego Yeah you knew she couldn't hide

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forever But the company declined open its server and big

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fuss ensued Lawyer bills were big but the press for

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the company was free and fantastic and far reaching Many

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cynics thought you paid off the government to sue you

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just for all the free press it would garner So

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the next quarter when the company was supposed to print

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18 cents a share in earnings it actually printed 23

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cents And you note that on its balance sheet it's

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deferred revenues line balloon from 17,000,000 tough 43,000,000 meaning that

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a ton of new sign ups came to the companies

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seeking to you know anonymous eyes themselves So now what

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do you do is an investor The stock has been

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trading around 20 bucks a share with 20,000,000 shares outstanding

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but now all of a sudden it's $32 a share

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thinking Damn I missed it But have you this mist

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it Resignation is an extremely common mistake among new or

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non professional investors or professional investors who are just not

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very good They don't look at the underlying fundamentals and

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the earnings momentum behind the stock So a pro a

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good one would ask a few questions like Is this

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market saturated like the price to anonymous eyes yourself for

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100 bucks a year so with say $50,000,000 in trailing

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revenues That would mean that 500,000 people have signed up

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to anonymous themselves Don't you think the world market is

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something closer to 100,000,000 people who'd anonymous eyes and then

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maybe you know 100 bucks each Right That's a world

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market of something like $10,000,000,000 And if I'm not here

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dot com own say 30% of that world market Well

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they'd be $3,000,000,000 in revenues and enormous profits So it's

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not like they've already dominated an early tiny market Right

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There are 7,000,000,000 people on this planet and you're assuming

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100,000,000 or 100 over 7000 there Whatever that percentages Yeah

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that would be the market Okay next question How good

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is this business Well to run it It's almost entirely

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about automating a software process that works with phone companies

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and cable companies and anyone else who provides Internet access

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to the masses along with a small army of lawyers

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who send a cease and desist letters toe websites and

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a few other masking app things that company updates every

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now and then Well in return for that identity masking

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so that they put out a mini press release on

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everyone who has Dia Na Nim ized with them so

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a share and fully tax earnings It was a big

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in America and around the world and I'm not here

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that So yeah that makes sense logically So if the

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costs than the 20,000,000 in operating costs And then well

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then you had in taxes right like there's affiliate fees

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and so on that they'd have to pay So maybe

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the company as ah no $50,000,000 in operating expenses or

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objects to then be taxed on 150,000,000 of operating profit

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to the tune of say 40,000,000 to then have 110,000,000

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huge amount of press and chaos going on all over

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the world with governments terrified of anonymous citizens and citizens

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loving the freedom of being anonymous Sure 2,000,000 feels easily

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doable this year And if company does these numbers well

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earnings fully tax unlevel earnings and in the process they'll

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have generated over $100,000,000 in cash on their balance sheet

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trade at a vastly higher multiple than 20 gones earnings

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more like 30 40 50 maybe even 80 times But

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even if you pick 50 times for your target multiple

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on that five bucks a share in earnings and you

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just ignore the fat cash stash being generated on the

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balance sheet with no debt you get a price target

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to 50 a share Well with the stock trading at

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32 bucks a share now why isn't this a screaming

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mo mentum by Well lots of nervous Nellies will worry

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