Ratio Analysis Activity

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Ratio $7$ Name & Formula:$$

Return on Assets $=$ net income $/$ total assets

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$1.$ What does this ratio tell you?

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$2.$ In general, would you like this ratio to be higher or lower? Why?

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$3.$ Compute this ratio for Year $2$:

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$4.$ Trend Analysis: Compute this ratio for Year $1.$ Did the ratio get better or worse from year $1$ to year $2?$

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$5.$ Industry Analysis: Estimates of industry averages for this ratio:$$ How does the ratio compare with the industry?

Upper quartile

$10\%$

Middle quartile

$3\mathrm{.}3$

Lower quartile

$1\mathrm{.}3$

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$6.$ What are some risks or concerns if this ratio is TOO LOW?

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$7.$ What are some actions that could INCREASE this ratio?

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$8.$ What are some risks or concerns if this ratio is TOO HIGH?

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$9.$ What are some actions that could DECREASE this ratio?

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$10.$ Why would this ratio be commonly considered as a key ratio at your organization, and in organizations in general?

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$11.$ What actions and$/$or decisions $($if any$)$ in your operational area$/$unit could influence this ratio?$$

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