馃搳 ROA, ROE & ROIC vs PROFIT MARGIN 馃搳
If you want to evaluate in a easy way the company performances against others, there are 3 basic ratios. Each measures a specific component of how profitable and efficient the company is in a given period. In summary, the calculation of these is:
ROA = Net income / Total Assets
ROE = Net income / Equity
ROIC = Net Operating Profit after Taxes / Invested Capital
It all aims to tell the proportion of the company's returns generated by its Total Assets (ROA) and Total Assets minus Total Liabilities (ROE). Perhaps, the most complex is ROIC because there are many methodologies; but, in general terms, it wants to know the proportion of operating returns considered all the money used. In some cases, ROIC and ROCE (EBIT / Capital Employed) is more or less similar.
Having said that, the logical question would be: Does anyone help me to quickly infer what the net margin of my business could be? To solve this problem, it was compared the Q2 2023 (twelve trailing month) data of 50 companies with the common denominator of being strategic and relevant to the national security of any nation.
The result shows that ROA correlated best with Net Margin with ≈ 87.99%, and Net Margin is explained by ≈ 77.42% by the behaviour of ROA. The rest of the figures are in the graph. Moreover, if all three variables are considered in one model, they can only explain ≈ 77.17% of the Net Margin, with a ≈ 88.6% correlation and an estimation error of ≈ 0.008x. In other words, ROA was the main and strongest indicator.
The enterprises selected were:
SEMICONDUCTORS
- Nvidia
- TSM
- Broadcom
- AMD
- Intel
- Texas Instruments
- Qualcomm
- Analog Devices
- Micron
- NXP
AEROSPACE & DEFENSE
- Boeing
- Raytheon
- Lockheed Martin
- Northrop Grumman
- General Dynamics
- TransDigm
- L3Harris
- Heico
- Howmet
PHARMACEUTICAL
- Eli Lilly
- Johnson & Johnson
- Merck
- AbbVie
- Novartis
- AstraZeneca
- Pfizer
- Amgen
- Bristol-Myers Squibb
- Gilead
ENERGY
- Exxon
- Chevron
- Shell
- Total Energies
- BP
- Equinor
- Petrobras
- Cameco
- Uranium Energy
- Consol
TELECOMMUNICATIONS
- Comcast
- T-Mobile
- Verizon
- AT&T
- Charter
AGRICULTURAL
- Nutrien
- Corteva
- CF Industries
- Mosaic
- FMC
- Scotts Miracle
This information will undoubtedly be useful for future posts. Many conclusions can be drawn. However, what do you think about?
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2023
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