Return on Assets (ROA): Niche Metric or Key Value Driver?

Learn more: breakingintowallstreet.com/co...
In this tutorial, you'll learn about Return on Assets (ROA) for both normal companies and banks and understand what it implies about a firm's valuation.
Files & Resources:
breakingintowallstreet.com/kb...
Table of Contents:
0:00 Introduction
0:50 The Short Answer
3:05 Part 1: ROA Calculations for Target and Costco
6:32 Part 2: ROA for Banks (JPM, Citi, Wells, and BofA)
9:49 Part 3: ROA in Real-Life Financial Models
10:46 Recap and Summary

[@financialmodeling]

Files & Resources:
breakingintowallstreet.com/kb/financial-statement-analysis/return-on-assets-roa/
Table of Contents:
0:00 Introduction
0:50 The Short Answer
3:05 Part 1: ROA Calculations for Target and Costco
6:32 Part 2: ROA for Banks (JPM, Citi, Wells, and BofA)
9:49 Part 3: ROA in Real-Life Financial Models
10:46 Recap and Summary

[@6toolbaseball]

I like comparing it to the Effective Interest Rate on Debt %

[@financialmodeling]

Not really sure how that relates, but sure, I guess. I think there are probably more specific metrics that a bank or insurance company would use for analyzing assets/liabilities.

[@jakerucker3294]

👍

[@financialmodeling]

Thanks for watching!

[@TheJoker-qn6vw]

Can you do a video on valuing insurance companies? They tend to be quite tricky to value.
Thanks and awesome video.

[@financialmodeling]

Thanks. There are quite a few videos on bank modeling in this channel, which is similar. We may cover insurance in the future but it's a fairly technical topic without broad appeal.

[@TheJoker-qn6vw]

@@financialmodeling Got it.

[@csanton3946]

Valuation will always be based on earnings. Dont be distracted by other multiples. Just know how a bank financial profile work, how an insurance financial profile work. Banks are usually leveraged 10x. 10 equity means 100 assets. Revenue of banks are based on its assets which is the money. Cost of money 5% this makes 5 dollar revenue and given a 20% profit margin you have 1 dollar income to a 10 dollar equity or simply summarized as : 10% ROE, 20x Asset Turnover, 20 percent profit margin
If PEmultiples is 10x earnings then you can say tge relationship of valuation to banks is 1x price to book, 2x revenue, 10x earnings,
Insurance companies financial profile are
On capital
30% equity
20% debt
50% reserve losses
On asset
40% working capital
60% investment asset
Revenues are usually 15% of assets and profit margin 20 %
So an equity of 30 means total assets of 100 with 15 revenue and 3 dollar in income. 3 over 30 means an ROE of 10% and a PE of 10x means prices or market cap of equity is at 30
Always be aware of financial profile, then get ROE, then apply reasonae PE, then you have a pricing idea based on other metrics such as asset or book value

[@vidya014]

How about :
Net Income ÷ ( Total asset + Total Liabilities )

[@financialmodeling]

It doesn't really make sense conceptually because Total Assets + Total Liabilities does not represent any specific concept or sum to any specific number.

[@vidya014]

@@financialmodeling the concept is: the lowest contrarian price you can get by multiply it by EPS.

[@ajraol9032]

It feels a crime to watch these videos & resources for free

[@financialmodeling]

Thanks! To be fair, these videos are also all promotional to some extent. But not as blatant as in other CZcams channels, sure.