[In comparing the performance of companies,] to learn something useful, we must decompose each company’s ROA, which exposes the underlying structure of the relevant profitability advantages. Specifically, ROA is the product of two very different elements of a company’s operations—return on sales (ROS = income/sales) and total asset turnover (TAT = sales/assets). One company’s ROA advantage over another need not be a function of advantages in each of ROS and TAT. Rather, an ROA advantage can be driven by superior ROS or superior TAT. Through the magic of ROA decomposition, differences in ROA can be attributed to differences in each of ROS and TAT.
Content: Quotation
Authors: Michael E. Raynor, Mumtaz Ahmed
Source: “Deloitte Review”
Subject: Finance
Authors: Michael E. Raynor, Mumtaz Ahmed
Source: “Deloitte Review”
Subject: Finance
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