Profitability in relation to investment, Finance Basics

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.

Posted Date: 1/30/2013 2:09:34 AM | Location : United States

Related Discussions:- Profitability in relation to investment, Assignment Help, Ask Question on Profitability in relation to investment, Get Answer, Expert's Help, Profitability in relation to investment Discussions

Write discussion on Profitability in relation to investment
Your posts are moderated
Related Questions
You have the following information for Stardusts: Current EPS is $1.79.  The current dividend is $.68 per share.  The return on equity is 24%.  The present price is $49.22. a.

What is the role of a broker in security transactions? How are brokers compensated? Ans: Brokers handle orders to sell or buy securities. Brokers are agents who work in place o

Role of CMA - Share Prices Role of CMA in determination of share prices 1. The CMA does not in any type of way influence share price of quoted companies. 2. The prices o

Legal Rules - Factors Influencing Dividend a) Net purchase rule States that dividend may be paid from company's profit either past or present. b) Capital impairment r

Cost of capital: The cost of capital is a term related to the field of financial investment to refer to the cost of a company's funds (both equity and debt), from an investor'

(Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl''s bonds have identical coupon rates of 9.125% but that one issue m

Floatation of New Shares Rules for floatation of new shares The company must contain an issued share capital of at least Kshs.20 M. The company must contain c

Functions of Central Depository System or CDS 1. Immobilization of securities that is removal of physical movement of securities. 2. Dematerialization that is removal of ph

Accounting Rate of Return Method or ARR This method utilizes accounting profits from financial status to assess the viability of investment proposal via diving the average inc