Financial Analysis - 642 Words

Return on Assets Assets are your firm’s total assets, not just what the company owns. Return on assets is calculated by dividing net operating income after tax (but before other income or expenses like interest expense) by total assets. Return on assets can be compared to other returns with similar or different risk profiles. For instance, if your business is only returning 4% annually (after tax) compared to, say, a 6% yield on a junk municipal bond, one could conclude that the business is under-performing for the risk taken by having all assets tied up in an non-liquid privately held business – its own. If few would accept such a low rate of return in general, particularly considering the risk of investing in a privately held business,†¦show more content†¦When your cost of capital exceeds your return on assets, your business is financially inefficient and destroying invested capital. In the mortgage example above, if the return on assets on the house is 5% per year and the mortgage interest rate is 5%, the cost of capital would be 9% (calculated using this formula). This excludes taxes and the current poor real estate market performance, which, when combined, would increase the gap between return on assets and cost of capital even further. This real estate investment would destroy capital because the cost of capital of 13% is far higher than the return on assets of 5%. Few people analyze real estate investment in this way even though this is the only way to truly understand make a good financial decision. When comparing your return on assets to other, similar businesses, it’s important to make the correct comparisons. Be sure that you are using return on assets not return on equity. Comparing returns on assets is a common method to size up the efficiency of one company over another in its use of invested capital. A better comparison, however, would be to make sure that the return on assets exceeds the cost of capital supplied to the company and invested in the total assets of the company. If return on assets is less than the cost of capital there is problem. How can it be fixed? By increasing net operatingShow MoreRelatedFinancial Statement Analysis : Financial Analysis1558 Words   |  7 Pagesyou hear the phase financial statement analysis, one wonders what is stands for. financial statement analysis is one of the most important part of any company to be successful. The reason companies rely on financial statements is for the company to come profitable even if the company is small or large. When companies use financial statement, it helps them to see if they are being profitable, by being used in different areas and reviewed by different departments. Chief Financial Officer and other executivesRead MoreFinancial Statement Analysis : Financial Analysis759 Words   |  4 PagesWoolworth Fin ancial Analysis Financial statement analysis assists a business entity, business shareholders and other people interested, to analyze the figures in financial statements to present them with superior information about such most important factors for decision making and ultimate business survival. As exemplified by Gibson (2001), income statement, balance sheet, and cash flow statements project the financial performance a company at the present and probably the future. According to theRead MoreFinancial Analysis1076 Words   |  5 PagesCango Financial CanGo Financial Analysis Report The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. 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INTRODUCTIONRead MoreFinancial Analysis of Lee College1527 Words   |  7 PagesFinancial Analysis of Lee College Not-for-profit organizations are required to produce financial statements that provide information about their financial position and performance. Lee College is a private, not-for-profit college that prepares its financial statements in accordance to the accounting standards of the National Association of College and University Business Officers (NACUBO). 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There are five to six main types of financial ratios including liquidity measurement ratios, profitability indicator ratios, debt ratios, operating performance ratios and cash flow indicator ratios (Richard Loth, n.b and Jim Riley,n.b)1 and 2. However, these can be grouped into two principal categoryRead MoreFinancial Analysis2238 Words   |  9 Pagestimes | Apendix: Ratios of the Grand Hotel Financial analysis | | | Financial ratios are useful tool to analyze the firm performance and financial situation or to compare the firm’s financial situation with other. It will help managers or the board of director to make good decisions in their performance and future prospects. Financial ratios could be classified into five types: profitability, liquidity, financial leverage, asset turnover, and dividend policy ratios (PaulineRead MoreFinancial Analysis4661 Words   |  19 PagesFinal Project – Financial Analysis Beatrice Valdez, MBA Student Capella University MBA 6016 Finance and Value Creation [ May 16, 2012 ] Michael Blagg, Professor Table of Contents Executive Summary | | 3 | Historical Financial Statement Analysis: Financial Ratios | | 3-4 | Balance Sheet | | 4-6 | Income Statement | | 6 | Statement of Cash Flows | | 6 | Pro-Forma Financial Statements | | 7 | Balance Sheet Pro-Forma | | 7-8 | Income Statement Pro-Forma | | 9 | CashRead MoreFinancial Ratio Analysis : Financial Ratios Analysis1634 Words   |  7 Pages UNIVERSITY OF HOUSTON CLEAR-LAKE HADM 5233: FINANCIAL MANAGEMENT II ASSIGNMENT: FINANCIAL RATIO ANALYSIS UHCL Honesty Code â€Å"I will be honest in all my academic activities and will not tolerate dishonesty.† Uday Sekhar Reddy Mareddy