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Unformatted text preview: Profit after Taxes * Sales Sales Assets Or Profitability * Efficiency Profit Margin * Asset Turnover ratio = ROA HIGH LOW LOW HIGH AVE AVE-Discuss the reasons: high profit margin indicates a lack of competition a barrier to entry. EXAMPLES: A PAT, High Tech, High Research and Develop area All of these imply a High Capital Investment. ~ you can make money 3 ways 1> Profitability 2> Efficiency 3> Leverage- how much debt is used to finance the company ROE= Profit after taxes * Sales * Assets Sales Assets Equity Or = Profit Margin * Turnover * Equity Multiplier EXAMPLE: Ferguson 4.339% * 2.07 / 9.08 = 2.364 = ROE = 21.47% Risk- Return Relationships What determines how large the ROI for a particular company....
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