Profitability return on assets 3 roa profit margin x

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Unformatted text preview: profit margin and asset turnover. Profitability: Return on assets (3) ● ROA = Profit margin X Assets turnover = Net income/sales X sales/assets Asset turnover => measures the relationship between sales and assets. how efficiently is the firm using its assets to generate sales? Profitability: Return on equity ROE measures the return to shareholders after accounting for the cost of debt. ROE = Net income / Equity Profitability: Return on equity (2) ROE = Net income / Assets X Assets/Equity = ROA X Capital structure leverage (LEV) In the textbook, LEV is known as Equity multiplier. Du Pont analysis ● Disaggregating ROE (Du Pont identity) ROE = Profit Margin X Assets Turnover X Leverage Application Year Yahoo! ROE Profit margin Asset Turnover Leverage 2006 8.2 11.7 0.558 1.26 2007 6.9 9.5 0.570 1.28 2008 3.8 5.9 0.527 1.22 2006 18.1 29.0 0.574 1.08...
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