week 4 discuss finance 571
Hello,
Please respond to these two classmates. Minimum word is 175.
You are writing a book on how to evaluate performance evaluation for a company.
- Think about some of the influences and measures of company performance that you read about this week.
- Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the performance of a company.
- Write about how to calculate ROA and PE ratio and how market conditions can affect these metrics.
- Share the ROA and PE ratio for a company you are familiar with. What do these metrics tell you about the financial health of the company?
Chris
Montoya
Chris
Montoya
4/4/20, 9:27 AM
NEW
Return on assets is way to look at how much a company earns and how many asset they own, they take that ratio and compare to its peers in the same market. This can be an indicator of business success, a way to improve this is to either increase the income or by improving productivity, increasing rice, selling more units or looking for tax benefits. Assets can be reduced looking at lease agreements, cost cutting (layoffs or selling off unprofitable business units). Price to Earnings ratio is a measure of valuation for a company. You would take a companies market value, and divide by income production. You are essentially determine what you are willing to pay for every single dollar of earnings per share a company can generate. This is how people can determine if a stock is worth buying. Market conditions, like we have currently, have many stocks that usually sold high low due to things that not in their control. This is usually a good time to invest in companies that have shown a trail of good performance previous. Also, because companies are unable to work right now, they may not be able to work or sell (restaurants, movie theaters , airlines) so their income is thrown off.
I compared 3 airlines, Delta, American Airlines and Jet Blue. Unfortunately, there wasn’t a lot of information for Q1 yet, but all stocks are selling for under $10 right now. For Q4 though Delta had almost double the return on investment that its peers had. This has been consistent going back to 2016, if I was going to invest in one of these carriers now that the stock market it down, I would pick Delta because of its historical performance before the crash.
https://www.macrotrends.net/stocks/stock-comparison?s=roi&axis=single&comp=AAL:DAL:JBLU
#2
an
Alevizon
an
Alevizon
4/2/20, 11:25 PM
NEW
Return on assets (ROA) shows the operating income, after tax, as a fraction of the companies total assets (Brealey, Myers, & Marcus, 2020). ROA is showing you how good is the company at getting a return out of the company assets (Khan, 2011). ROA is calculated by dividing after tax operating income by total assets at the start of the year (Brealey, Myers, & Marcus, 2020). Looking at the metric to calculate ROA the market conditions that could affect it include increases in efficiency or sales that boost after tax operating income or losing assets and still maintaining the same level of after tax operating income.
The example company used for the example is Axon Enterprises Inc. Axon in a public safety company.
The ROA of Axon at the end of 2017 was $29,205,000 (after tax operating income) / $719,540,000 (total assets) = .14% (“Axon Enterprise, Inc. (AAXN)†2019). This seems like Axon on 2017 was not getting a very strong return on the assets of the company and may have been a cause for concern.
The price to earnings ratio (PE) is a way to evaluate a company by comparing the price of its stocks to its’ earnings (Charles Schwab, 2017). The Stock price is the current price of a share of stock and this
