Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the...
- Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the performance of a company.
- Write about how to calculate ROA and PE ratio and how market conditions can affect these metrics.
- Share the ROA and PE ratio for a company you are familiar with. What do these metrics tell you about the financial health of the company?
Homework Answers
| Return on Assets is a ratio which is used to measure the return earned on amount invested in assets, a higher value of ratio inidcates the better formance and shows that company is earning good amount of return in investment in total assets. | ROA = net income/average of total assets | ||
| PE ratio is a market price ratio and it is used to measre the current market price relative to its earning per share. It is also known as price multiple earning multiple. It is used to compare the performance of company in terms of its price and EPS to its competitor. A high PE ratios indicates that investors are ready to pay more for the per dollar value of earnings. | PE ratio = Market price/earning per share | ||
| Company is Infosys | Details of variables are as follows-Year 2019-2020 | ||
| Net income | 2331000 | ||
| total of assets | 12260000 | ||
| EPS | 0.55 | ||
| Market price | 12.76 | ||
| ROA | net income/total of assets | 2331000/12260000 | 19.01% |
| PE ratio | Current market price/EPS | 12.76/.55 | 23.2 |
| Both of the ratio show impressive return and favors for the investors |
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Explain the use of return on assets (ROA) and the
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i need e & f
1. Determine the price rangs ratio (PE) c. What is the stock price using the PE ratio valuation method d. What is the stock price using the dividend discount model? e. What would happen to the PE (PE) and stock price if the company increased s ertion als gs in the form of dividends? 1. What you learned about the relationship between the retention and the PE rabios? the dyin 10 percent poding second What...
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.2) Retention ratio (R)
.3) return on assets (ROA)
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.5) DEBT equity ratio (D/E)
.6) Use the ratios computed to calculate the external financing
needed (EFN)
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