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Business Strategy Questions Assignment Help

Business Strategy Questions Assignment Help question -1 Assignment Help

Is Return on sales or return on equity a better basis on which to compare the performance of the companies listed ?

Business Strategy Questions Assignment Help Solution

Return on sales or return on equity

Return on sales is used to evaluate a company’s operational efficiency. ROS is also known as a firm’s “operating profit margin”. It indicates sales revenue that remains after paid operating costs associated with revenue.
Return on equity: It is basic measures of performance that indicates the return for their investment to investors. Equity is the difference between company’s assets and its liabilities. Return on equity helps to compare the performance of listed companies. In this, the ratio of net profit to shareholders’ equity is expressed as a percentage. It is an indicator that shows how well a company uses shareholders’ funds to generate a profit.
Along with this, it is a financial ratio that measures the return generated on shareholders’ equity, the book or accounting value of shareholders’ equity. It reflects the accumulation over time of amounts received by the company from share issued and the earnings retained by the company (Morrell, 2007). For example, a firm has an average equity of $250,000 and net income, also called earnings or profit, of $100,000. So, Return on Equity is $100,000 divided by $250,000, or 0.4. It means this company provides 40 cents profit for every $1 invested.

Business Strategy Questions Assignment Help question -2

Several companies are highly profitable, yet have delivered negative returns to their shareholders. How is this possible?


Business Strategy Questions Assignment Help Solution

Profits and dividends

Organizations pay dividends to shareholders out of business profits. A corporation has to increase its dividend payout with rising profits. Dividends are generally paid and quoted quarterly in per share amounts (Megginson & Smart, 2008). Through dividend yield, investors can compare dividend payment and profitability trends of different stocks against each other. Dividend yields are similar to interest rates. With the help of this, they can calculate the amount of investment income. To calculate dividend yield, a corporation’s expected annual dividend payments is divided by its current share price. For example, Corporation ABC may trade at $100 per share and offer a $1 quarterly dividend (Carlson, 2010). The dividend yield on Corporation ABC would then be 4 percent ($4 annual dividend / $100 share price).

It is important for organizations to share profits with investors in the form of dividends. When organization is highly profitable, but delivered negative dividends to shareholders, it means this organization provides false information to shareholders or disguises some important information from them (Megginson & Smart, 2008). Along with this, it is possible that the organization has high worth creditors who shows it highly profitable. At the same time, organization doesn’t earn profits, so it delivered negative dividends to shareholders.

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