Using Adjusted Earnings and Assets, FB’s Adjusted Return on Assets was 43% in 2015 – roughly five times the traditional 9% ROA most financial databases report.
This difference is primarily caused by FB’s $18.0bn goodwill, $4.8bn R&D investment, and $4.0bn excess cash, all of which significantly distort the firm’s economic reality.
Also of note is the difference between the firm’s Adjusted Forward Value to Earnings ratio of 23.4x versus the firm’s traditional forward P/E of 27.9x.
These low valuation levels relative to history, as well as the market’s overly bearish expectations, indicate that there may be equity upside potential for FB going forward.
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