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The phrase return on average assets (ROAA) is also used, to emphasize that average assets are used in the above formula. [2] This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. It's a useful number for comparing competing companies in the same ...
The company's operating income margin or return on sales (ROS) is (EBIT ÷ Revenue). This is the operating income per dollar of sales. [EBIT/Revenue] The company's asset turnover (ATO) is (Revenue ÷ Average Total Assets). The company's equity multiplier is (Average Total Assets ÷ Average Total Equity). This is a measure of financial leverage.
An appropriate capitalization rate is applied to the excess return, resulting in the value of those intangible assets. That value is added to the value of the tangible assets and any non-operating assets, and the total is the value estimate for the business as a whole. See Clean surplus accounting, Residual income valuation.
Investors use the return on assets ratio formula to evaluate a company. The greater a return, the higher valuation investors are likely to provide.
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A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements.Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
Merton's portfolio problem is a problem in continuous-time finance and in particular intertemporal portfolio choice. An investor must choose how much to consume and must allocate their wealth between stocks and a risk-free asset so as to maximize expected utility .
The weighted average return on assets, or WARA, is the collective rates of return on the various types of tangible and intangible assets of a company.. The presumption of a WARA is that each class of a company's asset base (such as manufacturing equipment, contracts, software, brand names, etc.) carries its own rate of return, each unique to the asset's underlying operational risk as well as ...