Discussion week 2

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University of Phoenix *

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380

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Finance

Date

Jan 9, 2024

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docx

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2

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Which ratio did you choose? Explain what this ratio means. What were the results of your calculation? Show your work to the class, including the formula you used and the data you input for your calculation Good afternoon class! Looking at the information, I chose the Return on Asset (ROA) Ratio. This ratio gives a specific value based on how well, or efficiently, a company utilizes its assets for profit. A company with a larger percentage is more effective at using its assets to turn a profit for the organization. The lower percentage could indicate that the companies’ current assets or process is not effective, or they have possibly invested poorly as an organization. This could also give a clear understanding of the company’s financial health if investors were purchasing the organization. The formula is listed below: ROA = (Net Profit / Total Assets) x 100 Net Profit = Gross Profit – operating expenses – taxes Using the information for the financial data of Hillside, Inc., we must first determine the Net Profit. Net Profit NP = 7,912.30 - 6906.20 NP = 1006.10 Then using Net Profit, we plug this into the ROA formula to get a percentage. ROA ROA = 1006.10 / 9,877.57 X 100 ROA = 10.19% According to Birken (2021), a ROA that is higher than 5 percent is usually determined to be good, and more than 20 percent is considered great. In the case of Hillside, Inc., they are sitting at 10.19% which is a good indicator of an effective and profitable organization. Meaning that investing, or purchasing, in this company should result in profitable returns. Thank you Kayla Birken, E. G. (2021, October 29). Understanding Return on Assets (ROA). Forbes Advisor . https://www.forbes.com/advisor/investing/roa-return-on-assets/
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