Create a 1 page page paper that discusses btn2-10. Question Return on asset is a financial analysis tool that shows the efficiency of a firm ingenerating profit using its assets. It is calculated using the following formula (net income/total asset) * 100 (Friedlob, and Lydia, 31). The higher the return on asset reflects high profitability level of an organisation. Samsung, Apple, and Google had the following ROA of 14.2%, 28.5%, and 12.9% respectively. In this case, Apple has the highest ROA and, therefore, it is profitable than both Google, and Samsung.
Debt ratio is an indicator of the solvency status of an organization. The ratio reveals the dependency level of a firm on loan to runs its operation (Rodgers, 23). The formula for this ratio is (total debt/total asset) * 100. Low debt ratio is advisable that is 50%, and below because a high debt ratio turn away potential investors. There is a high chance of a firm to be declared bankrupt when the debt ratio is too high. Samsung, Apple, and Google had the following Debt ratio of 32.9%, 32.9%, and 23.5% respectively. Apple and Samsung have an equal debt ratio of 32.9% in this comparison thus, tend to be risky. Analyzing ROA for Samsung and Apple, Samsung has the lowest. therefore it can be considered the riskiest firm to invest. The recommended maximum level of debt ratio is 50% and all the three firms operate below it.
For one to be successful in stock market like Warren Buffet, critical analysis need to be conducted on the financial performance of the interested company. One needs to consider profitability and risk level of the interested firms. In this case, Apple and Google can be considered on the basis of high profitability level of Apple, while Google low risk level. It should be noted that an investor will look for a high return from the investment. According to (Elton, & Gruber, 41), the higher the return, the riskier the investment, and, therefore, sound decisions need to be done. Comparing the risk versus return of the two firms one can make a sound decision on which firm to invest. For Apple return versus risk is (32.9/28.5=1.2), while for Google is (23.5/12.9=1.8). Apple has the lowest ratio, thus it is the best firm to invest in and get better returns.
Elton, Edwin J., and Martin Jay Gruber. Modern Portfolio Theory and Investment Analysis. 5th ed. New York: Wiley, 2008. Print.
Friedlob, G. Thomas, and Lydia L. F. Schleifer. Essentials of Financial Analysis. Hoboken, N.J.: John Wiley, 2003.
Rodgers, Paul. Financial Analysis. 4th ed. Oxford: CIMA, 2008. Print.