|
|
| Return
On Assets - ROA |
= |
Net
Income + Interest Expense |
|
Total
Assets |
|
Indicates
what return a company is generating on the firm's investments/assets.
Things
to remember |
- The
ROA is often referred to as ROI
- We
add the interest expense to ignore the costs associated
with funding those assets.
|
|
|
[Click
on the image(s) above to see the financial statements] |
For
Cory's Tequila Co. |
$2,096 |
=
0.14 |
$14,725 |
|
Return
on Assets Analysis:
This is an important ratio for companies deciding whether or not
to initiate a new project. The basis of this ratio is that if a
company is going to start a project they expect to earn a return
on it, ROA is the return they would receive. Simply put, if ROA
is above the rate that the company borrows at then the project should
be accepted, if not then it is rejected. Cory's Tequila Co.'s ROA
is 14% - very high, this is over double the cost of borrowing (at
time of writing).
|
|
|
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