Analyzing Financial Statements
1. Analyze ROA and ROE and how each one fits into Profitability Ratios.
2. What is financial leverage? What are the benefits and risks associated with financial leverage?
- Analyze ROA and ROE and how each one fits into Profitability Ratios.
Profitability ratios are financial ratios that expose the ability of a firm to satisfactory return on investment (ROI) and profit. Lesakova (2007) defines the ratios the that show the firm’s ability to generation profit from its sales. Two of these ratios are ROA and ROE. ROA (return on Assets) measures return that a firm gets from all its assets and is the ration net income to total assets (Kabajeh, Al Nu’aimat & Dahmash, 2012). It is used the show the level of efficiency of the management in generating income using the available resources.
Return on Assets (ROA)=