Booster your BIz

A more in-depth analysis of ROA is possible. According to Palepu, Bernard, and Healy (1997)4, the traditional measure of ROA is internally inconsistent since the denominator is total assets and represents all the resources or capital provided by both creditors and owners.However, the numerator is net income (after deduction of interest expense) and therefore represents profits available only to stockholders. A more internally consistent (since both numerator and denominator include debt-related information) measure of profitability is Continue reading…

We end up with a measure of success (ROE) made up of three components:

1. Profit margin (PM)to reflect the operating success of a company
2. Asset turnover (ATO)to reflect the investing success of a company
3. Financial leverage (FL)to reflect the financing activities of a company Continue reading…