Question

Share the ROA and PE ratio for a company you are familiar with. What do these metrics tell you about the financial health of the company?

Answer 1

Return on Assets of Apple for the fiscal year 2019 = 16.32

PE ratio of Apple as on 22nd June 2020 = 28.15

Return on Assets gives us an idea of how effective the company is in converting the money it invests in its assets into net income. The higher the ROA the better it is for the company because it shows that the company is earning more on making fewer investments.

P/E ratio shows what the investors are ready to pay today on per dollar of earning. High P/E ratio is not necessarily a better investment than one with a lower P/E ratio because having a higher ratio means that the stock is overvalued.