Profitability of dating websites

26-Nov-2020 22:41

The logic here is that companies may have a lot of goodwill (the amount it paid for acquisitions in excess of their fair market value) or other intangible assets that are often closer to accounting fictions than real-life assets at work earning returns.

The goodwill account has also been associated with accounting manipulation.

A reason to use Return on Tangible (or Net) Assets (ROTA, or RONA) might be if a company had a particularly large amount of goodwill that an analyst felt was muffling her ability to asses the company’s operational efficiency.

While ROTA makes logical sense, it’s not widely used, possibly because ROA is not the greatest profitability measure in the first place, for reasons not addressed by ROTA.

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It’s found in virtually all financial analysis textbooks, but it has a few pitfalls that investors need to know about.Accounting wonks with an axe to grind will point out that total assets tends to be moderately larger than total capital (defined as equity debt) because the total assets figure includes not only capital, but also non-interest bearing liabilities like accounts payable, taxes payable, and accrued expenses.