Ratio Analysis of Car Industry

Return on Equity measures how much net income is generated per dollar invested in the company by stockholders and investors. Again we see the same downward trend. It went down by 6% from 18% in 2011 to 12% in 2012.

Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard

* Return on assets (ROA) – ROA shows how successful a company is in generating profits on the amount of assets they own. Since assets consist of debt and equity, ROA is a measure of how well a company converts investment dollars into profit. The higher the percentage, the more profit a company is generating per dollar of investment. Similar to ROS, this ratio needs to be looked at compared to the industry as different industries have different requirements that can affect ROA. For example, companies in the airline and mining industries need expensive assets to operate so will have lower ROA’s compared to companies in the pharmaceutical or advertising industries.

First of all, return on asset (ROA) is a ratio used to measure how efficient a company generates profit using its assets, which is the invested capital. We noticed that HH’s ROA was increasing from 2006 to 2010. However, HH’s ROA for 2011 dropped dramatically from 18.41%(year

I. Rate of Return on Total Assets: Measures the company’s profitability relative to total assets. A percentage increment for Company G, from 12.30% to 13.68% (2011-12) keeps them above industry benchmarks (8.60% and 12.30%). Rate of Return on Total Assets represents strength for Company G.

The Rate of Return on Total Assets is the ratio that shows the earnings of a company including

Return on equity measures a company’s profitability by calculating how much profit a company generates with the money shareholders have invested. It is important to consider ROE and not just net income in dollar term because it helps for making comparisons among different investment amounts.

The Return on Equity ratio is a measure of the efficiency with which a company employs owners’ capital. It

Return on equity (ROE), or measure of profitability a company can acquire using shareholder investments is an important tool (Gitman, 2015). Aetna Inc. ROE of 17.01% is comparable to market leader Humana at 10.86% (AET: AETNA INC-NEW Stock Quote & Analysis - Zacks.com, n.d.). Return on Assets (ROA) or a measure of how profitable a company is relative to total assets is a ration that must be compared within industries (Gitman, 2015). Aetna Inc. ROA at 4.7, slightly below Humana’s at 5.25, but us average for the industry (AET: AETNA INC-NEW Stock Quote & Analysis - Zacks.com,

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

I take this opportunity to express my sincere thanks and deep gratitude to all those people who extended their whole hearted co-operation and have helped me in completing this project successfully.

During this period, the Return on Assets increased from 5.7% in 2012 to 34.6% in 2013. This implies the number of cents earned on each dollar of assets increased from 2012 to 2013. This shows that the business has become more profitable. Equally, the Return on Equity also increased from 12.0% in 2012 to 46.5% in 2013. This similarly implies that the company in 2013 was more efficient in generating income from new investment. This, also can be attributed to the sale of the Digital Business Brand which enabled the company appraise its strategic plan.

This tells us what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control. Return on assets gives an indication of the capital intensity of the company, which will depend on the industry; As Star River requires large initial investments it generally has lower return on assets.

This ratio is expressed in percentage. If the ratio is high it shows that the company is utilizing its assets in better way to generate its income. If the ratio is less it shows that the company is in difficult position to meet its debt. Formula to find the return on assets ratio is: - return on assets = net profit / total assets. Whereas net profit means the amount arriving after deducting all the expenses which includes taxes also. In addition to this he also explains about the profit margin ratio (PMR). PMR is the ratio which expresses the relationship between profit and sales. Formula used to find the PMR is: - Profit margin ratio = net profit/net

Amongst various industries of the country, I chose the automobile industry for the research purpose as it has grown tremendously during the last few years. The government attaches great importance to the growth and development of the industry, as it is a key driver of economic growth, technology transfer and a creator of jobs. Having made the decision regarding choice of the industry, I selected Indus Motor Company Limited (IMC) due to the reason that in 2007 it had become the major automobile manufacturer as well as a significant contributor to the economy of Pakistan. The company has good reputation in the market and owns the highest market share in the high segment (1300cc and above) of the industry. Obtaining information for this company was comparatively easier than its competitors.