Return on Tangible Capital (ROTC)
factor.formula
Return on Tangible Capital (ROTC) calculation formula:
The calculation formula for tangible capital is:
The net working capital calculation formula is:
The calculation formula for net fixed capital is:
The meaning of each parameter in the formula is as follows:
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Earnings Before Interest and Taxes for the last 12 months. This is a rolling profit indicator that can reflect the company's profit performance in the most recent year and avoid the impact of seasonal fluctuations.
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Tangible capital represents the physical assets used in a company's daily operations. It is an important indicator for measuring the scale of a company's investment in physical assets. It excludes the impact of intangible assets and focuses more on evaluating the profitability of physical assets.
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Net working capital refers to the balance after deducting current liabilities from current assets. It reflects the company's financial status for short-term operating activities and its ability to repay short-term debts.
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Current assets refer to assets that can be converted into cash or consumed within one year or one operating cycle, including cash, accounts receivable, inventory, etc.
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Current liabilities refer to debts that need to be repaid within one year or one operating cycle, including accounts payable, short-term loans, etc.
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Net fixed assets, usually, are directly replaced by fixed assets. This indicator represents the physical assets used by the company for long-term production and operation, such as factories and equipment. Here it is simplified to fixed assets, ignoring factors such as accumulated depreciation.
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Fixed assets refer to tangible assets held by a company for the production of goods, provision of services, leasing or management, with a useful life of more than one year, such as factories, machinery and equipment.
factor.explanation
The return on tangible capital (ROTC) measures the efficiency of a company's use of tangible assets (such as plants, equipment, etc.) to generate profits. This indicator eliminates the impact of intangible assets (such as patents, goodwill, etc.) and focuses more on evaluating the company's ability to return on investment in physical assets. The higher the ROTC, the stronger the company's ability to generate profits using tangible capital and the higher its operating efficiency. ROTC can be used to compare the efficiency of different companies in the use of physical assets, helping investors to screen out companies with stronger operating capabilities and more competitive advantages. This indicator is particularly important in industry comparative analysis because the intensity of tangible assets varies greatly among different industries.