Capsim Success Measures

Capsim Success Measures

RETURN
ON
EQUITY
(ROE)

Formula
Description:
What Does
Return On
Equity Tell
You?

Return on equity (ROE) is net profit divided by total equity.
Return on equity tells you how effectively a company is using the dollars invested in it by stockholders. ROE is the most often quoted single statistic when describing a firm 's performance. It is also one of the statistics considered to be most useful by stockholders.

RETURN
ON
ASSETS
(ROA)

Formula
Description:

You determine return on assets by dividing net profit by your total asset base. What Does
Return On
Assets Tell
You?

Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard are you working your assets? There is an economic opportunity cost notion associated with this ratio. An operating manager may be challenged with how a dollar spent on assets might do compared with a dollar invested in some other area
(e.g., a bank account), or how the
ROA compares with the interest a firm is paying on the money borrowed to pay for the asset.

RETURN
ON
SALES
(ROS)

Formula
Description:
What Does Return
On Sales Tell
You?

You determine return on sales by dividing net profit by net sales.
Since return on sales (ROS) gives the analyst an idea of the profit margin on a product, this ratio can reveal a great deal about product positioning and pricing policies. For example, a high ROS suggests premium pricing. This suggests the product will not be aimed at a commodity market. ROS is also a good indicator of demand and supply within the industry. The more competitive an industry, the more pressure there is on price and subsequently ROS falls. For example, the ROS of the airline industry has been low due to intense competition in the last few years.

Asset
Turnover
(T/O)

Formula
Description:
What Does Asset
Turnover Tell
You?

Asset turnover is derived by dividing period sales by average total assets.
Asset turnover