Different Factors Affect Profitability Indicators Among

* Return on assets (ROA) – ROA shows how successful a company is in generating profits on the amount of assets they own. Since assets consist of debt and equity, ROA is a measure of how well a company converts investment dollars into profit. The higher the percentage, the more profit a company is generating per dollar of investment. Similar to ROS, this ratio needs to be looked at compared to the industry as different industries have different requirements that can affect ROA. For example, companies in the airline and mining industries need expensive assets to operate so will have lower ROA’s compared to companies in the pharmaceutical or advertising industries.

Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as

This ratio is similar to ROA except that it shows only the return on the resource contributed by the shareholders. Home Depot maintained steady ratio the last two years while Lowe’s has been decreasing over the past three years.

The first ratio used in the financial analysis was a profit ratio which is the Return on Total Assets (ROA).

One area is financial leverage. Issuing debt allows Costco to increase its return on equity as long as the return on invested capital is greater than the cost of debt. If Costco 's core business earns 12% return on invested capital but it can borrow the debt at a lower rate, financial leverage would increase the ROE. Financial leverage is expressed as the ratio:

According to ROA, ANZ’s profitability fell short of Westpac’s by 0.146%, with the ROA percentage at 0.95% and 1.096% respectively (Appendix A). The difference in profits is caused by Westpac’s substantially higher total assets, which outweigh ANZ’s by $75,740,000. Although ANZ has a greater level of liquid assets, Westpac’s substantially higher loan portfolios generate higher returns. The lower ROA is caused by ANZ’s interest-bearing assets under-performing, or carrying lower risks leading to lower yields, or a greater reliance upon non-interest bearing assets. ROE is linked to ROA through the EM.

RETURN ON ASSETS (ROA) Formula Description: You determine return on assets by dividing net profit by your total asset base. What Does Return On Assets Tell You?

A high dividend payout policy reduces the rate of growth in earnings, g = br. For any rate of return on investment (r), the larger the payout ratio (the smaller the value of b), the slower the rate of growth. Lumber firms in general (Georgia Atlantic is an exception) have approximately a 35 percent payout ratio. Since the other companies have, on average, been growing at a rate of about 7 percent annually over the last twenty years, versus an average growth rate of 2.47 percent for Georgia Atlantic, it is clear that Georgia Atlantic's ROE on investment is substantially below the industry average.

The return on equity, ROE, is as high as 20.69% (above 15%). It illustrate that the RL Corporation uses the investors’ money pretty effectively. As of return of assets, equals to 13.10%, which reveals how much profit a company earns for every dollar of its assets. Both ROE and ROA for RL Corporation seems really good and they provide a picture that managers are doing a good job of generating return from shareholders’ investments.

The return on equity conveys the profits of the company as a rate of return on the amount of owners' equity. ROE uses average owners equity over the specified time period and net income. Historically a ROE of between 10% and 15% were considered average. Recently higher rates in growth industries have been greater.

Pharmacia 's ROE in 2003 was 29.56% and the industry average was only 12.29%. From the industry average view point, Chem-med is generating much better return on its equity.

1. ROE 2.25% - If this ROE went up it means Speedster Athletics is improving on generating profit from assets (without requiring as much debt) and have a better competitive advantage by creating more wealth to shareholders. If ROE went down Speedster is financially over leveraged may have been making high risk investments which is impacting stockholder value.

From above, the main driver for Sears to create value for shareholders is through leverage while Wal-mart’s effective use of assets acts in increasing ROE.

These are strike years so we will ignore them. In 1994, ROE is less than that of last three years. Overall its not good sign, but its explanation will be given in upcoming ratios.

Historically, the Du Pont innovation of (ROI) calculations represents one of the most significant turning points in the history of modern accounting and management, (Hounshell, 1998 ). The 1920’s began the Du Pont system company with methods and calculations from leaders, owners, executives, etc. Furthermore, it was the beginning of the integration of financial accounting, capital accounting, and cost accounting. When it comes to return on assets (ROA), they are a (ROI) measure that evaluates the organization’s return or net income relative to the asset base need to generate the income, (Finkler, Ward, & Calabrese, 2013). The Du Pont Company has been the leader of industrial research. Throughout the years with companies emerging, Du Pont’s method was becoming more prominent with owners and executives needing a method for