Question

In: Finance

1.Why Operating Assets are important in determining Market Value of firm of firm? Specially in Insurance...

1.Why Operating Assets are important in determining Market Value of firm of firm? Specially in Insurance industry

2. Why Operating Income is important in determining Market Value of firm of firm? Specially in Insurance industry

3.Why Net Income is important in determining Market Value of firm of firm? Specially in Insurance industry

4.Why Return on equity is important in determining Market Value of firm of firm? Specially in Insurance industry

5.Why Return on Assets is important in determining Market Value of firm of firm? Specially in Insurance industry

Solutions

Expert Solution

Answer 3: Net income represents the amount of money remaining after all operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.

NET INCOME =TOTAL REVENUE - TOTAL EXPENSES

Importance of net income in finding market value of firm:

Net income is one of the most closely followed numbers in finance, and it plays a large role in ratio analysis and financial statement analysis. Shareholders look at net income closely because it is the main source of compensation to shareholders of the company (via dividends and share buybacks), and if a company cannot generate enough profit to adequately compensate owners, the value of shares will plummet. Conversely, if a company is healthy and growing, higher stockprices will reflect the increased availability of profits.

Answer 4:  Return On Equity ratio essentially measures the rate of return that the owners of common stock of a company receive on their shareholdings.

ROE= NET PROFIT / SHARE HOLDER'S EQUITY

Importance of ROE in finding market value of firm:

Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders.

It can be used as a benchmark to pick stocks within the same sector only.

Answer 5: Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings.

Importance of ROA in finding value of firm

The ROA gives investors an idea of how effective the company is in converting the money it invests into net income. The higher the ROA number, the better, because the company is earning more money on less investment.


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