Project work using Ratio analysis
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Category:
Finance
Subcategory:
Ratio analysis
Level:
Academic
Pages:
13
Words:
3075
Finance Coursework Sample: Return on capital (ROC) =NOPAT/Total capitalization Return on capital is one of the profitability ratios that indicate how efficient a company is when it comes to the generation of profits from the capital. The ratio compares the net operating profit to the company’s capital. The ratios give a clear indication to investors on the number of dollars in profit per each dollar of capital that is invested into the business (Baños-Caballero, García-Teruel, & Martínez-Solano, 2014). The ratio incorporates the net operating profit after tax, divided by the capitalization of that given firm. For Costco incorporation, the return on capital for the year 2013 and 2014 can be calculated as follows; Return on capital (ROC) =NOPAT/Total capitalization For 2013, the operating profit after tax was $2061 million while in 2014; the value was $ 2088 million. The capitalization values for the year 2013 and 2014 were 12515 and 11012 respectively. Therefore, by use of the above formula, the ROC for the year 2013 was 0.19 and that of 2014 was 0.17.That means the profitability declined between these two years. 2014=2088/12515=0.17 2013=2061/11012=0.19 Return on Assets (ROA) =NOPAT/Total assets Return on assets is one of the financial ratios that indicate the profits earned by the company in relation to the resources of that company. This ration is usually shown as a percentage. ‘It is the primary profitability ratio which indicates the amount of revenue that the company makes per dollar of its assets Bebchuk, Hirst, & Rhee, 2014. The ratio is able to indicate the ability of an enterprise to generate profits leverage, instead of applying the leverage. Return on assets is very useful ration for the company because it gives an idea of how efficient the management utilizes the firm’s assets so as to generate revenue. It also indicates the capital intensity of the enterprise depending on the type of industry. Return on assets can easily be ...
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