As measured by this profitability metric (look at the Appendix 2), Pearson has, on average, been generating stable returns. This ratio reveals the company’s ability to control its operating costs. As it is noted, Pearson has well managed its operating costs in the long term. On the other side, even though Reed Elsevier has had on average higher profit margins, they have been much less stable than Pearson’s. This shows that Pearson has a higher ability to control its operating costs or overheads than its competitor, even though it may have higher profit margins. Return on assets:
This asset turnover is sometimes called the asset efficiency ratio. While none of both companies have yet managed to reposition their ROA to their 2006 figures (7.3% in Pearson and 9.2% in Reed Elsevier), Reed Elsevier has reached a higher growth in the past two years, from 6.6% in 2009 to 8.7% in 2010. Pearson has in fact decreased from 2009 to 2010, from 5.9% to 5.6%, which means it takes longer for Pearson to recover from its 2008 decline in using its assets efficiently. Return on equity:
This ratio portrays how profitably the company is utilizing shareholder’s funds. As it appears, Reed Elsevier’s amount of profit attributable to its shareholders is larger, on average over the past 5 years, than Pearson’s (23.4% against 21.4%). Return on capital employed:
ROCE is one of the most important measures of business performance, as it compares capital invested with operating profit. It tells how well the company has managed to generate profits out of the total funds entrusted to them. Once again, Pearson reaches its lowest point in 2008 in its ROCE with 8.5%, while even though Reed Elsevier’s also fell from 15% in 2007 to 12.6% in 2008, it managed to reach a 15% in 2010, while Pearson only managed to get 8.8%.