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Equal Energy Ltd (NYSE:EQU)
Return on Assets
10.10% (As of Mar. 2014)

Return on assets is calculated as net income divided by its average total assets. Equal Energy Ltd's annualized net income for the quarter that ended in Mar. 2014 was \$23.03 Mil. Equal Energy Ltd's average total assets for the quarter that ended in Mar. 2014 was \$227.94 Mil. Therefore, Equal Energy Ltd's annualized return on assests (ROA) for the quarter that ended in Mar. 2014 was 10.10%.

Definition

Equal Energy Ltd's annualized Return on Assets (ROA) for the fiscal year that ended in Dec. 2013 is calculated as:

 ROA = Net Income (A: Dec. 2013 ) / ( (Total Assets (A: Dec. 2012 ) + Total Assets (A: Dec. 2013 )) / 2 ) = 8.057 / ( (227.521 + 228.385) / 2 ) = 8.057 / 227.953 = 3.53 %

Equal Energy Ltd's annualized Return on Assets (ROA) for the quarter that ended in Mar. 2014 is calculated as:

 ROA = Net Income (Q: Mar. 2014 ) / ( (Total Assets (Q: Dec. 2013 ) + Total Assets (Q: Mar. 2014 )) / 2 ) = 23.032 / ( (228.385 + 227.491) / 2 ) = 23.032 / 227.938 = 10.10 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

In the calculation of annual return on assets, the net income of the last fiscal year and the average total assets over the fiscal year are used. In calculating the quarterly data, the Net Income data used here is four times the quarterly (Mar. 2014) net income data. Return on Assets is displayed in the 15-year financial page.

Explanation

Return on assets (ROA) measures the rate of return on the total assets (shareholder equity plus liabilities). It measures a firm's efficiency at generating profits from shareholders' equity plus its liabilities. ROA shows how well a company uses what it has to generate earnings. ROAs can vary drastically across industries. Therefore, return on assets should not be used to compare companies in different industries. For retailers, a ROA of higher than 5% is expected. For example, Wal-Mart (WMT) has a ROA of about 8% as of 2012. For banks, ROA is close to their interest spread. A banks ROA is typically well under 2%.

Similar to ROE, ROA is affected by profit margins and asset turnover. This can be seen from the Du Pont Formula:

 Return on Assets (ROA) (Q: Mar. 2014 ) = Net Income / Average Total Assets = 23.032 / 227.938 = (Net Income / Revenue) * (Revenue / Average Total Assets) = (23.032 / 80.336) * (80.336 / 227.938) = Net Profit Margin * Asset Turnover = 28.67 % * 0.3524 = 10.10 %

Note: The Net Income data used here is four times the quarterly (Mar. 2014) net income data. The Revenue data used here is four times the quarterly (Mar. 2014) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Be Aware

Like ROE, ROA is calculated with only 12 months data. Fluctuations in the companys earnings or business cycles can affect the ratio drastically. It is important to look at the ratio from a long term perspective. ROA can be affected by events such as stock buyback or issuance, and by goodwill, a companys tax rate and its interest payment. ROA may not reflect the true earning power of the assets. A more accurate measurement is Return on Capital (ROC).

Many analysts argue the higher return the better. Buffett states that really high ROA may indicate vulnerability in the durability of the competitive advantage.

E.g. Raising \$43b to take on KO is impossible, but \$1.7b to take on Moodys is. Although Moodys ROA and underlying economics is far superior to Coca Cola, the durability is far weaker because of lower entry cost.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Equal Energy Ltd Annual Data

 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 ROA 8.52 0.24 -9.12 -22.27 1.07 -8.54 -10.23 1.48 22.87 3.53

Equal Energy Ltd Quarterly Data

 Jun11 Sep11 Dec11 Mar12 Dec12 Mar13 Jun13 Sep13 Dec13 Mar14 ROA 5.98 -2.00 4.62 4.17 18.97 2.70 8.32 -1.51 4.63 10.10
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