Jkt Task 2d Essay

3915 Words Aug 8th, 2015 16 Pages
D1. ROS, ROA, ROE, Leverage, Sales, Profits

* Return on Sales (ROS) – ROS is the percentage of each dollar of sales that is left as a profit. For example if a company has $100 in revenue and $20 in profit, at the end of the period they have a ROS of 20%. ROS is best used when compared to other companies within the same industry. This is because different industries can have different levels of ROS depending on the competitiveness level. Competiveness can drive prices down overall in the industry, which will drive down ROS for all companies. A high ROS can indicate premium pricing in the industry or great efficiency where as a low ROS can be an indicator of financial trouble such as a company slashing prices just to garner
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This increase in ROA was driven by our capacity sale on the Acre product at the start of round 7. This reduced our Plant & Equipment assets from $175,000 in year 6 down to $131,634 in year 7 and 8. We had 682 units of Acre in inventory so were still able to generate sales without the asset commitment of capacity. Even though our ROA was near the top of the industry in the final two years, this good ratio was an indicator of what was limiting our success. That limiter was a lack of capacity (plant and equipment assets) which led to stock outs and lost sales/profits. The table below shows how little capacity our company has in comparison to the rest of the industry.

By expanding capacity we would be able to avoid stock outs, sell more product, increase profits and potentially ROA.

* Return on equity (ROE) – ROE is the percentage of net income relative to shareholder equity. This shows how much profit a company generates from shareholder investments. For the same reasons ROA can vary by industry, ROE does also and is best used as a comparison within the industry between companies. A higher ROE means more profit was generated from investor money than a lower ROE. The table below shows our ROE for each year compared to the industry. The graph following shows the ROE for Andrews alone over time.

In year 6 we retired stock which reduced our common stock from 18,360 to 17,779. This helped set up our gain in

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