Essay Sample on Discussion Financial Performance Evaluation

Performance metrics provide insight into the financial health of the company. The mechanisms include liquidity and solvency ratios, return on investment, return on assets, net profit margin as well the price-to-earnings ratio (Karim, 2020). Evaluation of these metrics enables management to make sound judgments on the company's strategies and direction. Return on assets shows the impact of company assets on revenue collection and considers how active the company is in utilizing available assets to generate income. As per Rostami et al. (2019), ROA shows the company's profitability against the value of assets. Price to earnings ratio measures the cost of a share and the dividends earned per share (Karamoy & Tulung, 2020). The ratio is used to compare the viability of investing in one company over the other.

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ROA is computed by dividing the total revenue of the company by the value of the total assets. Market conditions such as an increase or decrease in market share affect profitability and thus affecting the return on assets ratio. Price earnings ratio is calculated by dividing a company's share price by the dividends earned per share of that company's stock. Economic conditions such as inflation and high rates of unemployment can affect PE ratio by decreasing investor demand for the company's share, which then alters the ratio. Apple Inc. ROA stands at 16.1%, while PE is 17.73 (Robinson, 2020). The 16.1% ROA means that for every dollar worth of assets, the company generates sixteen dollars. 17.73 PE shows investors confidence that the company to improve its earnings.

The values determine a company's performance on its financial metrics. The various evaluation criteria also enable comparison amongst companies within the same economic sphere. The most considerable input of performance evaluation metrics is a utility by management to make sound decisions.

References

Karamoy, H., & Tulung, J. E. (2020). The effect of financial performance and corporate governance on the stock price in the non-bank financial industry. Corporate Ownership & Control, 17 (2), 97-103.

https://virtusinterpress.org/The-effect-of-financial-performance-and-corporate-governance-to-stock-price-in.htmlKarim, M. F. (2020). Ratio Analysis of Prime Bank Limited.

Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.

Rostami, S., Rostami, Z., & Kohansal, S. (2016). The effect of corporate governance components on return on assets and stock return of companies listed in the Tehran stock exchange. Procedia Economics and Finance, 36(16), 137-46.

https://www.researchgate.net/publication/299354774_The_Effect_of_Corporate_Governance_Components_on_Return_on_Assets_and_Stock_Return_of_Companies_Listed_in_Tehran_Stock_Exchange