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Profitability: d. Calculate ROI, showing margin and turnover, for the most recent year. e. Calculate ROE for the most recent year. f. Calculate the
Profitability: d. Calculate ROI, showing margin and turnover, for the most recent year. e. Calculate ROE for the most recent year. f. Calculate the price/earnings ratio for the most recent year, using the company's year-end market price per share of common stock in the numerator and diluted earnings per share in the denominator. g. Calculate the dividend payout and dividend yield ratios for the most recent year. h. Based on the results of your calculations in parts d, e, and f, assess the company's overall profitability. Explain which ratios indicate particular strengths and/or weaknesses within the company. Assume the following industry averages: ROI = 15%; margin = 10%; turnover = 1.5; ROE = 20%; price/earnings = 14.0; dividend payout = 40%; dividend yield = 5%. i. As an investor in this company's stock, would you be pleased with this year's dividend yield? How would your dividend yield "expectations" change, if at all, if the company's ROI was 5% higher? Explain. Financial leverage: j. Calculate the debt ratio and the debt/equity ratio as of the most recent balance sheet date. k. Based on the results of your calculations in part j. assess the company's overall leverage position. What would you estimate the industry averages to be for the debt ratio and debt/equity ratio? Explain. 1. Explain the relationship between ROI and ROE, and the concept of financial leverage. Would you expect the percentage difference between ROI and ROE to be high or low for a firm that makes substantial use of financial leverage?
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