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Return On Assets (ROA) Definition – Forbes Advisor – Forbes

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Updated: Oct 28, 2021, 9:53pm
Return on assets (ROA) is a measure of how efficiently a company uses the assets it owns to generate profits. Managers, analysts and investors use ROA to evaluate a company’s financial health.
Return on assets compares the value of a business’s assets with the profits it produces over a set period of time. Return on assets is a tool used by managers and financial analysts to determine how effectively a company is using its resources to make a profit.
If that sounds abstract, here’s how ROA might work at a hypothetical widget manufacturer. The company owns several manufacturing plants, plus the tools and machinery used to make widgets. It also maintains a stock of raw materials, plus unsold widget inventory. Then there are its unique widget designs, and the cash and cash equivalents it keeps on hand for business expenses.
Collectively, these are the widget manufacturer’s assets. The money the company earns from selling widgets minus the cost of materials and labor equals its net profit. Divide the company’s net profit by the value of its assets to get ROA.
It’s simple to calculate ROA, as we saw above: Divide a company’s net profit by its total assets, then multiply the result by 100.
ROA = (Net Profit / Total Assets) x 100
Public companies report net profit on their income statements, and disclose their total assets on their monthly, quarterly, or annual balance sheets. You can find these statements in a company’s quarterly earnings reports.
Let’s say our widget manufacturer reported a net profit of $2.5 million in 2020, and total assets at the end of the year of $38.5 million. To determine the company’s ROA for 2020, you would divide $2,500,000 by $38,500,000, giving you 0.64935. Multiply by 100 and round up to get a ROA of 6.49%. This tells you that for every dollar in assets owned by the widget company, they earn 6.49¢ in profit.
A more sophisticated ROA calculation takes into account that the value of a company’s assets changes over time. To factor this into your calculation, use the average value of assets the company owned in a given year, rather than the total value of its assets at year end.
Once you’ve determined the average value of a company’s assets, divide net profit by average assets and multiply it by 100 to get the percentage.
ROA = (Net Profit / Average Assets) x 100
To continue the example from above, you would average the value of the widget manufacturer’s assets from 2020, discovering that its average asset value is only $33,500,000, lower than the total at the end of the year. When you divide the company’s net profit of $2,500,000 by $33,500,000, you get a ROA of 7.46%. This ROA is more accurate than the 6.49% figure in the example above.
ROA is a helpful metric for gauging a single company’s performance. When a firm’s ROA rises over time, it indicates that the company is squeezing more profits out of each dollar it owns in assets. Conversely, a declining ROA suggests a company has made bad investments, is spending too much money and may be headed for trouble.
You should be very cautious about comparing ROAs across different companies, however. ROA is not a useful tool for comparing different sized companies or companies that aren’t in similar industries. Expected ROAs might vary even among companies of the same size in the same industry, but are at different stages in their corporate lifecycles.
For these reasons, it’s best to use ROA as a way to analyze a single business over time. Plotting out the ROA of a company quarter over quarter or year over year can help you understand how well it’s performing. Rising or falling ROA can help you understand longer-term changes in the business.
An ROA of 5% or better is typically considered good, while 20% or better is considered great. In general, the higher the ROA, the more efficient the company is at generating profits. However, any one company’s ROA must be considered in the context of its competitors in the same industry and sector.
For example, an asset-heavy company, such as a manufacturer, may have an ROA of 6% while an asset-light company, such as a dating app, could have an ROA of 15%. If you only compared to two based on ROA, you’d probably decide the app was a better investment.
However, if you compared the manufacturing company to its closest competitors, and they all had ROAs below 4%, you might find that it’s doing far better than its peers. Conversely, if you looked at the dating app in comparison to similar tech firms, you could discover that most of them have ROAs closer to 20%, meaning it’s actually underperforming more similar companies.
Return on equity (ROE) is a similar financial ratio to ROA, and both can be used to measure the performance of a single company.
ROE is calculated by dividing a company’s net profits over a given period by shareholders’ equity—it measures how effectively the company is leveraging the capital it has generated by selling shares of stock. If ROA examines how well a company is managing the assets it owns to generate profits, ROE examines how well the company is managing the money invested by its shareholders to generate profits.
Investors use ROE to understand the efficiency of their investments in a public company. ROA’s measure of a company’s efficiency in terms of assets complements the conclusions you can draw from ROE.
Though ROA is a helpful calculation, it’s not the only way to measure a company’s efficiency and financial health. A company’s ROA is influenced by a wide range of additional factors, from market conditions and demand to the fluctuating cost of assets that a company needs. ROA should be used in concert with other measures, like ROE, to get a full picture of a company’s overall financial health.
Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.
Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

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Intel, Block Supporting Mining a Positive for Bitcoin’s Price: Analyst – CoinDesk

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Large tech companies such as Intel and Block (previously Square) delving into making mining more efficient and accessible is likely to help the price of bitcoin by encouraging mass adoption, said an analyst for U.K-based digital asset broker GlobalBlock.
Intel, one of the world’s largest chip makers, said on Jan. 18 it will unveil an “ultra low-voltage bitcoin mining ASIC” which will be a more efficient specialized mining computer, competing with current miners that are in the market. “The fact that a $200+ billion tech firm is providing solutions for Bitcoin mining is more confirmation of big players entering the crypto space,” said GlobalBlock’s analyst Marcus Sotiriou.
The chipmaker said its new miner will reduce power consumption by about 15%, Sotiriou said, adding that such an increase in efficiency will help more institutional investors to enter the sector as ESG (environmental, social and governance) is one of their key investment priorities. If such a scenario plays out, it will likely help support bitcoin’s price.
Read more: How Bitcoin Mining Works
Crypto miner Griid Infrastructure, which is going public via a merger with special purpose acquisition company Adit EdTech Acquisition Corp., has already signed a supply agreement with Intel to potentially buy the chip maker’s new ASIC miners, according to a filing.
Meanwhile, payments giant Block said on Jan. 13 that it’s going ahead with its plan to build an open-source bitcoin mining system to make “mining more distributed and efficient.” If this feature is integrated with Cash App, it might increase the use of bitcoin to pay for goods and services by its users, furthering bitcoin adoption by the masses, Sotiriou noted.
“If successful, this will dramatically increase bitcoin’s use case as a means of exchange, rather than just a store of value – this would result in significantly more adoption and hence help bitcoin reach price figures of over $100,000,” he said.
Bitcoin is now trading near $42,000 since reaching its all-time high of just under $69,000 in November. The stocks of some miners, which are highly leveraged to the price of the crypto currency they mine, have tumbled more than 50% since their peak.
DISCLOSURE
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Aoyon Ashraf
Aoyon Ashraf is crypto mining reporter with more than a decade of experience in covering equity markets
Follow @@Aoyon_A on Twitter
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The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.
@2021 CoinDesk

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Dogecoin value 2022: Why did Elon Musk make the cryptocurrency's value rise? – Marca English

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Dogecoin’s value increased by 5,859% over the past 12 months
Dogecoin rose to $0.20 – a 15% increase in value – after billionaire Elon Musk announced Tesla would accept the cryptocurrency for purchasing merchandise.
The cryptocoin with the shiba inu dog meme originally started as a joke, but Musk’s various tweets about it have helped Dogecoin increase by 5,859% over the past 12 months, according to Coinbase. Tesla’s website started accepting Dogecoin soon after, with items such as an electric quad bike for kids priced at 12,020 doge ($2,368), the “Giga Texas Belt Buckle” for 835 doge ($156), and a whistle for 300 doge ($57).
This is just one of many tweets by Musk regarding Dogecoin, the first one coming December 20, 2020 when he tweeted, “One Word: Doge.” Shortly after his tweet, the value of Dogecoin rose by 20%.
Musk followed that post with a barrage of Dogecoin-related tweets in February 2021, including, “Dogecoin is the people’s crypto,” and “no highs, no lows, only Doge”. After these tweets, Dogecoin’s value soared by roughly 40%.
After a full year of showing support for Dogecoin, on December 14 Musk said Tesla would accept the cryptocoin to pay for merch. Dogecoin spiked more than 20% after his tweet.
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This mom quit her job to focus on crypto full time and build 'generational wealth.' Now she makes around $80,000 per month – CNBC

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This mom quit her job to focus on crypto full time and build ‘generational wealth.’ Now she makes around $80,000 per month  CNBC
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