How to Decompose ROA (Return on Assets)

This video shows how to break a company's Return on Assets (ROA) down into two components: Profit Margin and Asset Turnover.

The formula:
ROA = Net Income / Average Total Assets
is equivalent to saying that:
ROA = Profit Margin * Asset Turnover
because Profit Margin is Net Income divided by Net Sales, whereas Asset Turnover is Net Sales divided by Average Total Assets

Decomposing ROA into Profit Margin and Asset Turnover is important because it tells you about a company's strategy and why its ROA is high or low relative to the company's competitors. Some companies rely on a high Profit Margin (e.g., a luxury car dealership) whereas other companies rely on high Asset Turnover (e.g., a grocery store, which doesn't make a lot of profit with each sale, but should generate a large amount of sales given its assets).—
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
—
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
http://eepurl.com/dIaa5z
—
SUPPORT EDSPIRA ON PATREON
*  / prof_mclaughlin  
—
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
https://edspira.thinkific.com
—
LISTEN TO THE SCHEME PODCAST
Apple Podcasts: https://podcasts.apple.com/us/podcast...
Spotify: https://open.spotify.com/show/4WaNTqV...
Website: https://www.edspira.com/podcast-2/
—
GET TAX TIPS ON TIKTOK
  / prof_mclaughlin  
—
ACCESS INDEX OF VIDEOS
https://www.edspira.com/index
—
CONNECT WITH EDSPIRA
Facebook:   / edspira  
Instagram:   / edspiradotcom  
LinkedIn:   / edspira  
—
CONNECT WITH MICHAEL
Twitter:   / prof_mclaughlin  
LinkedIn:   / prof-michael-mclaughlin  
—
ABOUT EDSPIRA AND ITS CREATOR
https://www.edspira.com/about/
https://michaelmclaughlin.com