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Analysis : The Return On Average Income Ratios

Decent Essays
The return on average assets ratio measures how efficiently a company can make a return on its investments in assets, thus showing how effectively they can transform their assets into profit.
There was a sharp, continuous decline between 2012 and 2015, but the company recovered in 2016 with a 1,37 percent increase between 2015 and 2016 numbers. 16,25 percent is a healthy return rate, meaning that for every one rand that the business invested in assets during the year a net income of R16,25**** were produced. This healthy return rate will be beneficial to the company in South Africa’s current economic state.
It is clear that the business

2. Return on equity:
This profitability ratio measures the ability of a company to produce profits
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At that time the company might have been able to cover some of their current liabilities, but not all of them and wouldn’t have been eligible for a loan from a bank. After the increase in 2013, the ratio continually decreased to a very low 1,11 in 2016, indicating that the Shoprite group clearly struggles to cover their short-term liabilities. The company is thus highly leveraged and it would be risky to invest in the business.

5. Interest cover:
The interest cover ratio is a financial ratio that measures a firm’s capability to make interest payments on its debt in an appropriate manner. It mainly calculates if the firm will be able to afford the interest on the company’s debt.
A ratio close to one will denote that the company will find it difficult to generate enough cash flow to pay interest on its debt, therefore a ratio over 1,5 will be ideal.
The company experienced a sharp decline in their interest cover ratio between 2012 and 2013, with a decrease of 7,65 from 2012 to 2013’s numbers. They were still more than able to pay the interest on their debt and the ratio fairly improved from 2013 to 2016 with 2,1, though there was a slight decrease from 14,66 in 2015 to 14,50 in 2016.

6. Total asset turnover:

7. Debt to asset ratio:
The debt to asset ratio is a leverage ratio that assesses the amount of total assets that are financed by creditors instead of investors, in other word it measures a company’s
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