Question

Use the Internet to research an annual report of on Samsung. Then, imagine you are an investor or creditor and suggest the ratios that you believe would provide an investor or creditor with the most important information needed to make accurate predictions about the company’s financial condition. When analyzing a company, is it more important to compare the ratios to competitors or to the company’s previous history? Provide a rationale for your response. Note: You must provide a link or instructions to the researched report.

Answer 1

This is just based upon my own knowledge of the subject, no help of external report taken to provide link of. You can find the mentioned ratios from Morningstar.com. Thanks

• The types of ratios often used by investors or creditors to make accurate predictions about the company’s financial position are profitability ratios.
• They provide measures of profit performance, which serve to analyze and evaluate the periodic financial achievement of a firm. The most critical measures of a company’s profitability are Return on Assets (ROA), Return on Equity (ROE), and Return on Investment. The above-mentioned ratios are very imperative for a company’s investors.
• Besides, Leverage Ratios can provide an effective framework how of the ability of a firm to meet its financial obligations.
• Return on Assets (ROA) is a measure of how effective the company’s assets are utilized to generate profits net of its expenses. A higher ROA is a clear indication of a firm’s efficient management.
• Return on Equity (ROE) on its part is a measure of the net income returned, which is as a percentage of the shareholder’s equity. Similarly, a higher ROE suggests that the firm has an effective management system that efficiently utilizes its equity base to provide better returns to the investors.
• On the other hand, return on Investment (ROI) is a measure of how effective the firm utilizes its equity investment. This measure is usually higher than the ROA.
• Conclusively, when analyzing a firm, it is more important to compare the abovementioned ratios to with the firm’s previous history in order to ascertain whether its value has been appreciating or depreciating over time. Through this an investor or creditor can be able to find out whether the company’s future prospects are ideal or not.