Edit post

Edit your reply below.

Post Body
Enter your post below.
Return on Assets (ROA) is calculated by dividing net income by average total assets.  This is the simplest method and is satisfactory for illustrative purposes.  Most analysts opt for a slightly more complex method.  They take net income + net interest expense - interest tax savings and divide the result by average total assets.  The DuPont methodology, which was introduced by DuPont, calculates ROI, which is similar to ROA, and is favored by some analysts because it measures the combined effects of profit margin and asset turnover. If a company has net income after taxes of $50,000 and total average assets of $1,000,000, the ROA is 5 per cent.  If the average assets are $500,000, without a change in net income, the ROA is 10 per cent.  If the assets drop to $250,000, the ROA is 20 per cent, again assuming no change in net income.  Businesses increase ROA by increasing revenue, decreasing operating and capital expenses, or some combination thereof.  But governments have another option.  They can absorb all or part of the cost of the assets and thereby remove them from the books of the operating company. I understand that the French Government absorbed most of the capital costs associated with the TGV, thereby setting the stage to generate a positive ROA.  Or ROI if you like!  The concept is the same.  The government absorbs most of the capital costs or the denominator.  If this is true, then the argument that the TGV has earned an ROA of 15 per cent is a bit dodgy.  It has a 15 per cent ROA only because the French taxpayers are wearing the capital costs incurred to build the high speed rail infrastructure.  Amtrak could achieve a positive or better ROA for the NEC if the government would absorb the capital costs associated with its build-out.
Tags (Optional)
Tags are keywords that get attached to your post. They are used to categorize your submission and make it easier to search for. To add tags to your post type a tag into the box below and click the "Add Tag" button.
Add Tag