I notice that many beginners like to look at technicals and then jump into buying stocks, but when they incur losses, they cry out that stocks are risky. The real problem is that they never look at ROA!

ROA (Return on Assets) is a figure that tells you how well a company manages its assets. It shows whether management is working efficiently or just burning through money. This number isn't easily deceived like other figures.

Let's look at the formula first: (Net Profit / Total Assets) × 100. The result is a percentage, meaning how many baht of profit the company can generate from every 100 baht of assets.

Now, the important question is: what ROA is considered good? Generally, if ROA is above 5%, it passes the threshold. But if you want to call a company truly excellent, you should see ROA consistently above 10% for several years.

But here’s where most people go wrong — industries are not the same! A software company with an ROA below 15% is considered terrible, but a power plant company with an ROA around 5-7% is already quite good because their business structures differ.

I’ve seen stocks with high ROA that decrease year after year. That’s a clear warning sign that management is facing problems. Conversely, if you find a company with ROA increasing steadily for 3-4 years, it’s like discovering a raw diamond no one else has noticed.

Remember, the ideal ROA depends on comparing it to industry peers. Never compare a bank’s ROA to a tech company’s!

A common misconception is confusing ROA with ROE. ROE can be artificially inflated by borrowing heavily, but ROA cannot be fooled because it includes debt in the denominator. That’s why Warren Buffett prefers to look at ROA.

Take Apple and Tesla as examples: Apple doesn’t need to build factories; it designs in California and manufactures in Asia. Its ROA consistently hovers around 25-30%. Tesla, on the other hand, has to carry massive factories worldwide, so Tesla’s ROA fluctuates between 5-15%, depending on the market. That’s the nature of their businesses.

So, what should ROA be? The answer depends on the industry. But the principle is: the higher, the better. Continuous growth is even more impressive. If it’s declining, run away!

If you connect ROA with CFD trading, it’s even more powerful. Suppose you scan financial statements and see ROA declining for three consecutive quarters, but the stock price hasn’t dropped yet. You can wait for a technical signal and open a short position. When poor fundamentals meet favorable technical signals, that’s the combo professional traders use to make money.

Limitations to know: don’t use ROA to evaluate banks. Bank ROA is low because of their business model, not because they’re bad. Often, tech companies have high ROA because their assets are low, but their brand value isn’t reflected on the books.

In summary, if you want to know what ROA should be, look at which industry the company belongs to and compare it with competitors. If ROA is higher than peers and growing steadily, go for it. If it’s low and declining, run! This number doesn’t lie.