Question

• 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?

Answer 1

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