Return on Assets (ROA) and Return on Equity (ROE) - Economics Assignment Help

Assignment Task

Risk profile: a commonly used measure of systematic risk in the capital market is ‘beta’. Get your stock’s beta. If its beta is highly bigger than 1, then your stock has relatively high systematic risk.
Returns: There are several ways to measure a firm’s performance.
A). stock market return (past 6 month return, 12 month return and 36 month return);
B). accounting returns, such as return on assets (ROA) and return on equity (ROE).
Capital budgeting analysis: you should study the asset part of the balance sheet. In particular, capital expenditures are directly associated with investment decisions. You should get the ratio of capital expenditures over total assets of the firm and compare it with its peers or industry average. Another item – R&D expenditures is also important. It is expensed, not capitalized. So you should look at income statement. Again please don’t use dollar value of R&D, use the ratio of R&D over total assets instead because ratios are comparable across firms and industries, while dollar values are not. You can also find useful info from “Management’s Discussion and Analysis” Part in the annual/quarterly report published by the firm.
Financing analysis: you should calculate the firm’s debt-to-equity ratio, interest coverage ratio, current ratio, etc. to get a sense of the firm’s long-term and short-term financing status. And compare them with the industry norm.
Valuation analysis
List the following key variables for your stock in a table. (You need to get these from company’s balance sheets and income statements. Group project Lecture PPT notes present the formulas for the following measures.)
Value and Value Added
Measuring Profitability
Measuring Efficiency
Analyzing the Return on Assets: The Du Pont System
Measuring Leverage
Measuring Liquidity
Calculating Sustainable Growth
Remember: Ratios are not very helpful by themselves: they need to be compared to something. You must do the following:
Time-Trend Analysis -- to see how the firm’s performance is changing through time
Peer Group Analysis -- compare to similar companies within industries or compare to industry averages
How to find a company’s balance sheets and income statements? –Yahoo Finance

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