Asset intensive businesses

Return on Assets as a Measure of Asset Intensity (or How "Good" a Business Is) 
The lower the profit per dollar of assets, the more asset-intensive a business is. The higher the profit per dollar of assets, the less asset-intensive a business is. All things being equal, the more asset-intensive a business, the more money must be reinvested into it to continue generating earnings. This is a bad thing. If a company has a ROA of 20%, it means that the company earned $0.20 for each $1 in assets.

As a general rule, anything below 5% is very asset-heavy (manufacturing, railroads), anything above 20% is asset-light (advertising firms, software companies).

Option 1: Net Profit Margin x Asset Turnover = Return on Assets

Option 2: Net Income ÷ Average Assets for the Period = Return on Assets

As always, you should be interested in non-asset intensive businesses with high returns on equity, little or no debt, operating in non-commodity type industries without fixed cost structures. You should also attempt to look for under valuation in larger rather than smaller companies. In the event of a retail recovery, for example, Wal-Mart is more likely to recover sooner than a small specialty retailer such as Tuesday Morning. The owner of smaller issues may find himself waiting considerably longer for his shares to realize their full value in the market.

In most cases, investors would best be served by avoiding commodity industries entirely unless prices are so low that the respective companies are being given away (even then, the holdings should be sold once a more reasonable valuation has returned. These are not the kind of stocks you want to pass on to your grandchildren).