Return On Assets (ROA) : Index of Industrial Production IIP Purchasing Managers' Index PMI
Return On Assets (ROA) : Index of Industrial Production IIP Purchasing Managers' Index PMI
Profitability ratios assess a company's ability to earn profits from its sales or
operations, balance sheet assets, or shareholders' equity.
Profitability ratios indicate how efficiently a company generates profit and value for
shareholders.
Capital employed refers to the amount of capital investment a business uses to operate and provides
an indication of how a company is investing its money. Although capital employed can be defined
in different contexts, it generally refers to the capital utilized by the company to generate profits.
The figure is commonly used in the Return on Capital Employed (ROCE) ratio to measure a
company’s profitability and efficiency of capital use.
Capital Employed = Total Assets – Current Liabilities
Return on capital employed (ROCE) is a profitability ratio that measures the profitability of a
company and the efficiency with which a company is using its capital. The ROCE is considered
one of the best profitability ratios, as it shows the operating income generated per dollar of invested
capital. The formula for ROCE is as follows:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
The working capital formula tells us the short-term liquid assets available after short-term liabilities
have been paid off. It is a measure of a company’s short-term liquidity and is important for
performing financial analysis, financial modeling, and managing cash flow.
A higher working capital turnover ratio is better, and indicates that a company is
able to generate a larger amount of sales.
It is calculated by dividing net sales by the net of its property, plant, and
equipment.
A high ratio indicates that a company efficiently uses its fixed assets to
generate sales, whereas a low ratio indicates that the firm does not efficiently
use its fixed assets to generate sales.
The higher the asset turnover ratio, the more efficient a company is at generating
revenue from its assets. Conversely, if a company has a low asset turnover ratio, it
indicates it is not efficiently using its assets to generate sales.
Stability is the long-term counterpart of liquidity. Stability analysis investigates how much
debt can be supported by the company and whether debt and equity are balanced.
Since it indicates the company’s ability to instantly use its near-cash assets (assets
that can be converted quickly to cash) to pay down its current liabilities, it is also
called the acid test ratio. An "acid test" is a slang term for a quick test designed to
produce instant results.
What Is the Interest Coverage Ratio?
The interest coverage ratio is a debt and profitability ratio used to determine how
easily a company can pay interest on its outstanding debt. The interest coverage
ratio may be calculated by dividing a company's earnings before interest and
taxes (EBIT) by its interest expense during a given period.