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Finance GlossaryReturn on Assets (ROA)
Return on Assets (ROA)
Definition of Return on Assets (ROA)
Return on Assets (ROA) is a parameter used to measure the efficiency of a company in using its assets to generate profits. The ROA is calculated by dividing the net income by the total assets. A higher ROA implies the business is optimising the use of its assets, like plants, equipment, or cash, in order to earn money. The ROA metric is particularly useful when analysts compare companies in the same industry.
Related Terms
Enterprise Value
Enterprive Value is a metric used to determine the total value of a company. It is valuation technique used by companies to understand how much money they need to pay to acquire another company.
Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:
EV = Market Capitalization + Net Debt
Or
EV = Market Capitalization + Debt - Cash
Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:
EV = Market Capitalization + Net Debt
Or
EV = Market Capitalization + Debt - Cash
Liquidity Ratio
The Liquidity Ratio is a tool in financial analysis for measuring a company’s ability to fulfil short-term debt obligations without the need to secure external financing. The key term here is liquidity.
Cash Commodity
A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
Government Bonds
Government bonds are debt instruments that allow the central banks to raise capital to finance operations. The types of government bonds are:
- Treasury Bills
- Fixed Rate Bonds
- Floating Rate Bonds
- State Development Loans
- Sovereign Gold Bonds
- Zero Coupon Bonds
Every government bond has a credit rating that’s based on the financial health of the country. The government is the apex institution of any country, which is why their credit rating is the high.
In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.
In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.
Bureau Of Indian Standards
Bureau Of Indian Standards (BIS) is responsible for standardizing and certifying goods and services from third parties so that the end consumer knows that the products are safe and reliable.
BIS was established in 1986 and was rebranded from the Indian Standards Institution (ISI) to BIS during the year to adapt to the changing product landscape of India.
BIS was established in 1986 and was rebranded from the Indian Standards Institution (ISI) to BIS during the year to adapt to the changing product landscape of India.
Equity Options
An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.
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