Financial ratios are essential to provide an accurate valuation of a firm.

Posted: March 15th, 2023

Financial ratios are essential to provide an accurate valuation of a firm. Select a publicly traded firm of your choice. Select one ratio each in the areas of (a) performance, (b) activity, (c) financing, and (d) liquidity warnings. Provide an evaluation of the selected firm’s strengths and weaknesses. Based on the ratios you selected, how well does your chosen firm perform? Explain.

 

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SOLUTION

ROE measures how efficiently a company is using its shareholders’ funds to generate profits. The formula is: ROE = Net Income/Shareholders’ Equity. For Apple, the ROE for the fiscal year 2021 was 78.5%. This indicates that Apple is generating significant profits relative to the amount of shareholder’s equity invested in the company. Apple’s high ROE indicates that the company is using its resources effectively and generating good returns for its shareholders.

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