 ThrowDemsOutIf you can't convince 'em, confuse 'emPremium
join:2002-03-03
Mullica Hill, NJ
kudos:4 | said by Ahrenl:ROA is the wrong measure for "Investors" You want to use ROE. Especially for large leveraged companies ROA will ALWAYS be tiny, because your denominator will be so large. Examples: ComcastReturn on assets 2.37% Return on Com Eqty 6.22%VerizonReturn on assets 3.47% Return on Com Eqty 14.05%AT&TReturn on assets 3.53% Return on Com Eqty 8.64% ROE is a good measure for Qtrly and Yearly measures and for investors that get in and out of the market based on stock price and projected earnings. ROA is a much better measure of a company's long term viability and its ability to cover the cost of capital and return consistent dividends. Both measures have their value. Institutional investors(pension funds especially) that look for good companies for long term investing consider ROA as a key measure.
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Ahrenl
join:2004-10-26
North Andover, MA | As a good measure of a company, but not measure of return. The return to investors generated by the company is the ROE. ROA intermixes the return on assets that may have been generated by debt issuance, retained earnings, or, ahem, legislative handouts. Of course your nominal ROA on free assets will be lower, as they cost you nothing and distorted your NPV/IRR decision process.
Btw, welcome back from the "ignore posts" limbo... |
