RUTH MAE BUMANGLAG BSMA-4 BA428 FS 3:00-4:30

1. What is Return on Investment? How is it computed?

Return on investment (ROI) is a financial ratio used to calculate the benefit an investor will
receive in relation to their investment cost. It is most commonly measured as net income divided
by the original capital cost of the investment. The higher the ratio, the greater the benefit earned.
ROI = Net Income / Cost of Investment or ROI = Investment Gain / Investment Base
2. What is Return on Assets? How is it computed?
Return on Assets (ROA) is a type of return on investment (ROI) metric that measures the
profitability of a business in relation to its total assets. This ratio indicates how well a company is
performing by comparing the profit (net income) it’s generating to the capital it’s invested in
assets.  The higher the return, the more productive and efficient management is in utilizing
economic resources.
ROA = Net Income / Average Assets or ROA = Net Income / End of Period Assets
3. What is the importance of a Financial Leverage?
Financial leverage is the ratio of equity and financial debt of a company. It is an important
element of a firm's financial policy. Financial leverage can also mean the use of company
financial resources at a fixed charge. Financial leverage of two implies that for one dollar of
equity, there are two dollars of financial debt. This allows the company to use debt to finance
assets acquisitions.
 Leverage is an essential tool a company's management can use to make the best financing
and investment decisions.
 It provides a variety of financing sources by which the firm can achieve its target
earnings.
 Leverage is also an important technique in investing as it helps companies set a threshold
for the expansion of business operations. For example, it can be used to recommend
restrictions on business expansion once projected return on additional investment is lower
than cost of debt.
4. How do you compute for Net Profit Margin?

Net Profit Margin= Revenue - Cost

Revenue
5. What is the purpose of Total Asset Turnover? How do you compute it?
The total asset turnover ratio compares the sales of a company to its asset base. The ratio
measures the ability of an organization to efficiently produce sales, and is typically used by
third parties to evaluate the operations of a business.

Total Asset Turnover = Net Sales / Total Assets