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Type of Securities Investment Strategies Fundamental Analysis Technical Analysis
Introduction to Fundamental Analysis Income Statement Analysis Balance Sheet Analysis Cash Flow Analysis Shareholders' Equity Analysis Ratios and Definitions


Income Statement Analysis

 - Great companies and good
    EPS growth do not guarantee
    stock market profits

 - The P/E ratio can create
    buying opportunities


 - Mishaps can create steals

 - Unusual charges reduce the
    value of your stock

 - ROE is the single best tool
    for investors

 - ROA is another valuable tool

 - Investors pay for high profit
    margins

 - Lenders can eat up all the
    profits

 - Depreciation creates
    deferred taxes, which have
    equity-like qualities


 - EPS is a complicated
    calculation

 

 


ROA is another valuable tool

Return on assets (“ROA”) measures how effective and profitable a company is in utilizing its assets. ROA is calculated by dividing annualized net income by average total assets and is expressed as a percentage.

ROA is an informative tool use when evaluating and comparing companies in asset intensive industries.  It’s useful to investors when analyzing industry trends.  The banking and finance industries are good examples; they use a variation of ROA, by tracking the return on average earning assets, as well as their cost of funds for interest bearing liabilities. In most cases, the higher the ROA, the better. An unusually high ROA percentage, however, can also indicate that the company is taking an unacceptable or inappropriate level of risk.

 

 

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