Return on assets is the amount that a company earns in all their resources, not only shareholders and equity loans in the long term, but short-term resources generated by the effective management of working capital. A company may seek short-term, low-rate loans or credit to buy goods that were resold for cash, thus increasing the assets available for deployment at low or no cost. These assets contribute to an increase in income, improving the profitability of both funds and return on assets.
The assets of the toughest is therefore to measure depending on the results of returns, as evidenced by the deployment of all the results of asset management at the time of disposal. Starting with a high return on assets should yield a high return on investment and thus on equity. (Some analysts estimated an “index of financial leverage” equal to the return on equity divided by the return on assets.)
Microsoft is not asset-intensive, while GE is fairly intensive assets. The income of many companies are driven by brand names and / or distribution systems and inventory much more than the physical plants and other resources that make up its balance sheet asset. Microsoft is based more on fixed and other assets, but is also capable of extracting profits from its prodigious brand and market position. GE asset intensive requires large investments in plants and equipment, including its products enjoy a very high brand recognition.
It is too early to say how Amazon.com fare in the competition for high-yield assets. Certainly its business model is designed to minimize the intensity of assets. Its brand name and presence on the Internet are the main drivers of sales and thus revenues. This minimizes their needs for fixed assets, avoiding the bricks and mortar store operations to which Barnes & Noble and other traditional retailers are devoting resources. Amazon.com ’s just-in-time inventory management is designed to reduce the costs of implementing the inventory. Its trade with customers and suppliers income per unit higher short-term working capital management income it receives from customers, as the products are ordered, but generally does not have to pay its suppliers property until 30 to 60 days later.
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