Question

How can we comment to the company after looking the profitability ratio from year 1 to 4? Positive or negative trend and why big different between ROA and ROE?

Profitability				Year4	3	2	1
Net profit				3.9	4.08	3.94	4.56
ROA				7.32	7.68	7.05	8.24
ROE				25.53	25.89	22.89	24.95

Answer 1

Profitability ratios gives the investors about the true colour of financial position of a company.A high ratio indicate high profitability. Here in this company their profitability ratios are varying. We can see the highest ratio in the first year, after that it starts declining again increase and then decrease.Net profit margin can be calculated by dividing net income from total revenue.Here it shows the profitability after all expenses including interest and taxes. The profitability can be measured using this net profit margin ratio

When comes to ROA (Return On Asset) by name itself suggest it is the return from asset.ie percentage of net earnings relative to the companies total asset.High ROA indicates the company is earnings more from less investment. In this company ,they earns comparatively high ROA in first year, then after it starts declining.So we can conclude that the company is not getting sufficient results after the first year

ROE( Return On Equity) it is a measure of efficiency. High amount of ROE suggets that the company is earning more profit without much capital investment.It also shows how the management of the company is serving the share holders of that company. Here in this company the rate of RoE shows a positive impression. It shows an increasing trend.

The values of ROE and ROA have big difference. The reason is that ROE measures the efficiency of the firm based on profits. But ROA is dealt with the return from assets.Both are different.