ROA Calculation Example

This ratio shows the company’s ability to produce net income with the total assets it owned. In the CGE 1997 annual report, we can calculate the ROA by using the following equation (amounts are in FFm/France francs million): Return on Assets (ROA) = (Net Income / Average Total Assets). Therefore, ROA for 1997 is: ROA = (5,392. 50/258,219) = 2. 09%.

Return on Equity (ROE)

The Return of Equity for Vivendi can be calculated using following equation: Return on Equity (ROE) = (Net Income / Average Shareholder’s Equity) Therefore, ROE for 1997 is: ROE = (5,392. 50 / 44,911.30) = 12. 01%.

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Profit Margin

A profit margin indicates how much profit a company can obtain from a certain amount of sales. The profit margin for Vivendi can be calculated using following equation: Profit Margin = (Net Income / Sales) Therefore, Profit Margin for 1997 is: Net Profit Margin = (5,392. 50 / 167,115. 60) = 3. 23% Figure 2 Profitability Ratio.

Liquidity Ratios

Current Ratio

The ratio shows the company’s short-term responsibility for its debts. A higher number indicates that the company is liquid / has a larger capability to pay its short-term debts. The current ratio for Vivendi can be calculated using following equation: Current Ratio = (Current Assets/ Current Liabilities) Therefore, Current Ratio for 1997 is: Current Ratio = (121,712 / 111,874. 80) = 108. 79%.

Net Working Capital Ratio

The Net Working Capital Ratio for Vivendi can be calculated using the following equation: Net Working Capital Ratio = ((Current Assets – Current Liabilities)/Total Assets) Therefore, Net Working Capital Ratio for 1997 is: Net Working Capital Ratio = ((121,712 – 111,874. 80)/ 258,219) = 3. 81% Figure 3 Liquidity Ratio.

Long-term Solvency

Long-Term Debt/Equity Long-Term Debt/Equity = Long-Term Debt/Equity = (44,085 / 44,911) = 98. 16% Figure 4 Long-Term Solvencies.

Activity Ratios

This ratio refers to the ability of a company to convert its vast account into cash or sales immediately.

Inventory Turnover

It describes how often a company’s inventory is exchanged (sold and replaced) within a given period: Inventory Turnover = Sales/Inventory = 167,116 / 27,297 = 612. 22%.

Sales/Total Assets

Sales/Total Assets = Sales / Total Assets = 167,116 / 258,219 = 64. 72% Figure 5 Activity Ratios.

Reference:

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4. http://www.refresher.com/!rkjainnovation.html Kotelnikov, Vadim. (2007). Diversification Strategies. November 12, 2007
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