Question

Analyze the profitability of two companies: a. How to tell which company showed the greatest improvement...

Analyze the profitability of two companies:

a. How to tell which company showed the greatest improvement (or least decrease) in profitability as measured by ROA?

b. how to tell which company showed the greatest improvement (or least decrease) in profitability as measured by ROE?

c.  Are your answers for (a) and (b) different?

d.  If yes, why?

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Answer #1

I am choosing Amazon and Walmart for year 2017 and 2016

a)ROA return on Assets=Net income/Assets

Amazon:

2017=3033000/131310000=2.31%

2016=2371000/83402000=2.84%

Walmart:

2017=9862000/204522000=4.82%

2016=13643000/198825000=6.86%

We can see that for Walmart compared to 2016 ,2017 ROA decreased same with Walmart. We can say amazon has least decrease when compared with walmart

b)Return on equity(ROE)=Net income/Equity

Amazon:

2017=3033000/27709000=10.95%

2016=2371000/19285000=12.29%

Walmart:

2017=9862000/77869000=12.66%

2016=13643000/77798000=17.54%

For both Walmart and amazon 2017 numbers decreased compared with 2016 and the least decrease is for amazon

c)No it is the same

d)It is no as both ROE and ROA tells the same

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