1) Decompose Alcoa’s ROE by quarter for 2006 and 2007. In what direction do you see the company’s performance moving? What other information would you like to see (be specific)? Answer: ROE is the return on equity which is determined using the formula net income divided by the total shareholders’ equity. This calculation is essential in order to understand whether there is any improvement or decrease in the return on investment for the common shareholders. In this case, from the below calculation it is clear that there is only a slight improvement in the ROE for 2007 when compared to 2006 ROE Calculation: (in $millions) 2006 2007 Consolidated net income I $2,248 $2,564 Total shareholders’ equity II $14,631 $16,061 ROE III=I/II 15.36% 15.96% Decomposing ROE: ROE = Net profit margin*Asset Turnover ratio * Financial leverage. Net profit margin = Net profit/Sales Asset turnover ratio = Sales/Total assets Financial leverage = Total asset/Total shareholders’ equity (in $millions) 2006 2007 % change Sales $30,379 $30,748 1.21% Net profit $2,248 $2,564 14.06% Net profit margin 7.40% 8.34% 0.94% Total assets $37,183 $38,803 4.36% Asset turnover ratio 0.8170132 0.792413 -2.46% Shareholders’ equity $14,631 $16,016 9.47% Financial leverage 2.5413847 2.4227647 -11.86% ROE 15.36% 16.01% 0.64% From the above decomposition of ROE it is clear that there is only slight improvement in the sales but the improvement in net income is more significant which indicates about the improvement in the profitability of the company. Overall net profit margin has increased by 0.94% which is a positive indication about the financial performance of the company. There is increase in the t... ... middle of paper ... ...milarly, new entrants are entering with the green technology in to the market which is making the new players more competent. Economic slowdown is also having direct impact on the business as aerospace and government contracts are mainly influenced by these factors. There are many competitors growing in the market that are not using the same quality like Alcoa and resulting in cheap imports which creates more stiff competition. Higher investment in the technology and operating efficiency is adding more pressure to the company along with the energy cost. Similarly, unfavorable currency movement is creating more trouble to the company. Alcoa is present in more countries which are creating more foreign exchange problems. They have versatile customer base, change in specification and business strategy of those companies is creating more difficulties for the business.
The financial statements for Exxon in 2014 are a slightly declined than it made in 2013. Exxon experienced decrease in operating income from 2013 to 2014 of $74 billion to $61 billion. Operating income indicates how much a company earned from business activities, the company has less profitable. Their operating margin Exxon made in 2014 is also decreased. It is 4% less than they made in 2013. Exxon must figure out their operating performance, include Cost of Goods Sold or fixed costs and increase revenue performance. The sales revenues that companies made in 2014 are $365
Canandaigua’s return on assets is better than the industry standard for 1998, and just under the industry standard in 1997. The company’s management has been able to improve the company’s ROA by almost doubling net income from the prior year. Management has in the past done a good job of utilizing its assets, and by the latest results is doing an even better job. Canandaigua’s gross margin(25.62) is less than the industry standard(43.80%). It appears that the company’s production costs are greater than others in the industry. Profit margin(6.78%) is greater than the industry standard(6.64%) in 1998. Canandaigua is very good at controlling selling & general administrative expenses. Higher sales in 1998 resulted primarily from additional beer sales, largely Corona Beer sales, additional table wine sales and additional spirits sales. The company has increased its return on common stockholder’s equity(12.84%), compared to the industry standard of 10.89%. Canandaigua does a fair job of controlling borrowing. Interest expense was reduced by ...
Among the threats that this company is facing include air pollution, terrorism, Islamic revolution. Increase of oil and furl, reduction of the number of travelers moving from one part of the globe to the other and voices of labor unions who fight for the rights of workers.
Return on sales is decreasing and is below the industry average, but the goods news is that sales and profits have been increasing each year. However, costs of goods are increasing and more inventory is left over each year causing the return on sales to decrease. For 1995, it was 1.7% which is less than the average of 2.44% but is a lot higher than the bottom 25% of companies as seen in exhibit 3, which actually have negative sales return of 0.7%. Return on equity is increasing each year and at a higher rate than industry average. In 1995, it was 20.7%, greater than the average of 18.25% and close to the highest companies in exhibit 3, of 22.1% showing that the return in investment in the company is increasing, which is good for the owner.
Return on equity (ROE) measures profitability from the stockholders perspective. The ROE is a calculation of the return earned on the common stockholders' investment in the firm. Generally, the higher this return, the better off the stockholders are. Harley Davidson's return on equity was 24.92% for 2001, 24.74% for 2000. They have sustained consistent, positive, returns for their shareholders for the past two years.
Description: Return on Equity (ROE) indicates what each owner’s dollar is producing in terms of net income that is the rate of return on stockholder dollars. ROE is a common metric for assessing the value of a firm and most investors look to ROE first when deciding where to allocate their capital. As such, it is also an important measure for a CEO to monitor.
“Return on Equity.” Investopedia. Investopedia US, A Division of IAC., n.d. Web. 25 March 2014.
The main contributing factor to the decline in the return on stockholders’ equity (25.37% to 8.73%) was the decline in the profit margin (11.79% vs. 5.08%). The decrease in asset turnover (1.11 to 1.00) made a small contribution to the decline, as did the decline in the debt ratio (48.4% to 41.8%).
The first analysis will be on Verizon. The current ratio and the debt to equity ratio both improved in 2006 when compared to 2005. However, the net profit margin dropped from 9.8% to 7.0%. What does this tell us as investors...
The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most significant value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and it's relationship to the companies' generation of profits and utilization of assets into the calculation. Additional profitability ratios include the price earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to indicate to investor how expensive the shares of common stock of a firm are. Dividend yield is part of the stockholders ROI and is represented by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for preferred stock. Dividend payout ratio shows the proportion of the earnings paid to common shareholders. Dividend payout for manufacturing companies range from 30% to 50%, but can vary widely.
Economic factors affecting negative or positive way the companies. The inflation and currencies rates have big influence.
The analysis of these ratios shows how Ford stands as a company for the past five years. Return on equity (ROE) reveals how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet. For long-term investing with great rewards, companies that have high return on equity ratios can provide the biggest payoffs. This ratio also tells investors how effectively their capital is being reinvested, so it is a good gauge of management's money handling skills. Ford is showing a considerable turn around in this area this past year, which could easily be due to changes in management. They are also reasonably following the industry in this area.
A study has been conducted to find the reasoning behind the surprisingly abrupt success decrease. It shows that one of main contributing factor includes a new increase in competitors in the area, which may start to create a rivalry with the industry. Competitors can become a huge danger towards companies since this gives the customers more options when deciding which product to purchase. There have also been new entrants, who of which are creating new and different products that are now available to the customers. Customers are also being persuaded by the power of other companies. This is now becoming a very competitive market, which can have a great effect on the company’s success. Although this is just one factor that seems to be affecting sales, there seems to be more contr...
The gross profit margin is at 27% which is a percent higher than industry standards. The company is performing good and meeting industry standards in terms of cost of goods sold and sales volume. The net income margin decreased to 0.7% in 2003 a decrease of 0.3% compared to 2002.