Chapter 4 PPT - Part 2

Chapter 4 PPT - Part 2 - Return On Assets Independent of...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter: 04 1 Return On Assets Independent of firm’s financing decisions. Measures ongoing profitability. Unusual or nonrecurring items (such as restructuring charges), may be removed, net of tax. Return on Assets is calculated as: Assets Total Average Earnings in Interest Minority Expense) rest Rate)(Inte Tax - (1 Income Net + +
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter: 04 2 Disaggregating ROA ROA can be further disaggregated into: Assets Total Average Sales Turnover Assets Sales Income Net Adjusted Margin Profit : Where Turnover ts ROA x Asse for Margin Profit ROA = = =
Background image of page 2
Chapter: 04 3 Realized ROA versus Expected ROA Realized ROA is derived from financial statement data for a particular period and will not necessarily correlate perfectly with expected returns. Reasons for this may be: Faulty assumptions were used in deriving expected ROAs. Changes in the environment. ROA is an incomplete measure of economic rates of return.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Elements of risk - differences in ROAs Three elements of risk help in understanding differences across firms and changes over time in ROAs: Operating leverage: Refers to proportion of fixed costs relative to variable costs. Cyclicality of Sales: Are sales sensitive to
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 15

Chapter 4 PPT - Part 2 - Return On Assets Independent of...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online