FIN 4830: Analysis of Corporate Financial Statements
Professor: Rajesh Narayanan
Team of Analysts:
Analysis of Profitability
1. Profit Margin:
a. 2012:2032/8710 = 23.33%
b. 2011: 1452/7789= 18.64%
2. Return on Assets:
c. 2012: Year: 2032/28644 = 7.09%;
d. Previous Year: 1452/261435= 5.55%
3. Return on Common Equity:
e. 2012: 2032/14973.5= 13.57%
f. 2011: 1452/14515.5= 10%
What corporate characteristic causes the return on assets and return on equity percentages to be different?
It depends on the corporate structure. Because Assets = Liabilities + Equity, equity will always be less than or equal to total assets. If the corporation is funded through equity vs. long term borrowing, the__ return on equity will be lower. If they are funded through long term debt, there will be less equity in the company, which will reduce the denominator and therefore increase ROE.______________________ All three of the preceding ratios indicate profitability by comparing income from continuing operations to another number in the income statement or balance sheet. In comparison to the previous year, has the corporation improved its ability to generate a profit? Justify your answer based on the ratios you calculated.
Yes. Fed Ex increased their profit margin from 18.64% to 23.33% over the last fiscal year. Although the denominator (revenue) did increase, income from continuing operations increased at a much higher rate over the same period, therefore there was a (serious) net increase to the profit margin. This tells us that Fed Ex was able to increase total volume of revenue, but at the same time, increase the margin that they make on that revenue at a higher rate which is obviously just another way of stating that they have improved their ability to generate a profit. 4. EPS...