Profitability in relation to investment, Finance Basics

Assignment Help:

Profitability in relation to investment - Profitability Ratio

a) Return on Investment (ROI) or return on total asset (ROTA)

= (Net profit/ Total asset) x 100

The ratio indicate the return on profit from investment of Sh.1 in total assets e.g a ratio of 20% means Sh.10 of total asset generated Sh.2 of net profit.

b) Return on equity (ROE) = (Net profit/ equity) x 100

It is called also like or Return on net worth (RONW) or Return on shareholders' equity (ROSE)

The ratio signify the return of profitability for every one shilling of equity capital added via the shareholders as a ratio of 25% means one shilling of equity generates Sh.0.25 profit attributable to ordinary shareholders.

C) Return on capital employed ROCE =   (Net profit/ Net Asset (Capital employed)) x 100

It is called also like or Return on net asset (RONA).

These ratios show the returns of profitability for every single shilling of capital working in the firm.


Related Discussions:- Profitability in relation to investment

Liquidity preference theory, Liquidity Preference Theory This theory s...

Liquidity Preference Theory This theory states that short term bonds are extremely favorable than long term bonds for two (2) purposes. 1. Investors usually prefer short te

What is dependency ratio and why is it important, Question 1: a) What ...

Question 1: a) What is dependency ratio and why is it important for pensions? b) For which types of schemes is dependency ratio mostly relevant? Explain c) What is the

Fixed Exchange vs Flexible Exchange Rate, Critize the flexible exchange rat...

Critize the flexible exchange rate regime from the viewpoint of the proponents of the fixed exchange rate regime

Bills of exchange, Bills of Exchange Bills of Exchange are a source of...

Bills of Exchange Bills of Exchange are a source of finance in specifically in the export trade. A bill of swapping is an unconditional arrange in writing addressed via one pe

Potential investors - measuring business performance, Potential Investors -...

Potential Investors - Measuring Business Performance Potential investors These parties are interested in a company in total both on long and short term basis in particula

#lpp, Solve the following Linear Programming Problem using Simple method. M...

Solve the following Linear Programming Problem using Simple method. Maximize Z= 3x1 + 2X2 Subject to the constraints: X1+ X2 = 4 X1 - X2 = 2 X1, X2 = 0

Determinants of required rate of return, Determinants of Required Rate of R...

Determinants of Required Rate of Return 1.Risk free rate - This is the interest rate such would exist on default free securities like Treasury bills and bonds. Risk free

Capital budgeting, Definition of 'Capital Budgeting': The process in w...

Definition of 'Capital Budgeting': The process in which a business calculates whether projects such as building a new plant or investing in a long-term risk are worth pursuing

Debentures and bonds, how can debentures be explained in class in term of g...

how can debentures be explained in class in term of game, role play etc....?

Motgage Broker Assgnment, ollowing a personal introduction, and before you ...

ollowing a personal introduction, and before you begin gathering information about the clients’ existing financial situation or needs, there are certain disclosures you are require

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd