Professional Documents
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CHANGE
LIMITATIONS
Looks at PBIT as a % of sales Measures profitability after all expenses are considered as a % Inc: a company is more efficient
ROCE
ROE Measures the return of money the investors have put in the company.
Higher values are generally favorable meaning that the company is efficient in generating income on new investment. Investors should compare the ROE of different companies and also check the trend in ROE over time. However, relying solely on ROE for investment decisions is not safe. It can be artificially influenced by the management, for example, when debt financing is used to reduce share capital there will be an increase in ROE even if income remains constant.
does not take into consideration how much debt a company has or whether the company has utilized a stock buyback to lower shareholder equity.
ROA Measures the efficiency in which the company is Inc: show that business is more
profitable. indicates that the profitability of
economic environment. the total assets are based on theCV of the assets, not the market value. If there is a large discrepancy between the carrying and market value of the assets, the ratio could provide misleading numbers. Bank Lenders Manageme nt
Used to test the ability of a company to pay the liability of a business within a year.
does not focus on the quality of the current assets and so called the crude ratio. does not tell anything about the profitability of the company.
Quick ratio
measures the ability of a company to pay its debts by using its cash and near cash current assets (i.e. accounts receivable and marketable securities).