Return on Assets (ROA) and Return on Equity (ROE) are two useful analytical measures to assess the financial performance of companies. ROA refers to how efficient an organiza- tion is with the use of its assets. ROE shows how effective a firm is in utilizing its equity. Both can assess a firm’s efficiency in generating earnings from investment, but they do not represent the exact same thing. Moreover, they may generate conflicting information about the financial health of a firm (McClure, 2018). Hannagan (2008) indicates that while ROA is still in use, ROE is a better tool due to its applicability across industries and firms of varying sizes within industries. Hence, McClure (2018) indicates that ROE is one of the most important of all the essential financial ratios. These ratios are also related to the capital structure of various organizations. Capital structure of a firm is a composite of the total mix of debt and equity held by the firm (Bokpin, 2009). Nor, Haron, Ibrahim, Ibrahim, and Alias (2011) indicate that even this mix is different in nature, as debt and equity com- plement each other, but the problem remains how to determine the best ratio of the two to efficiently operate a business. Kumar, Colombage, and Rao (2017) suggest that capital structure determinants serve as robust pillars that give competitive advantage to organi- zations. Accordingly, these factors jointly shape the financial mix of an organization and are dynamic in nature. These measures were often used in assessing the financial perfor- mance of firms in industries both in developed nations and emerging markets. Vietnam is considered one of the strongest emerging markets with many developing industries.
This study aims to determine the effect of loan to deposit ratio (LDR) and non-performing loans (NPL) on return on assets (ROA) and Implications for stock price rate of change using SPSS 16.0 statistical software. In this study, there are 4 variables: LDR and NPL as independent variables (X1 and X2) and ROA s and Stock Price Rate of Change as a dependent variable (Y) and (Z). The research method used is a causal associative method that aims to determine the relationship between two or more variables. Effect of LDR, NPL to ROAs. Based on the results of SPSS processing, it can be concluded that the influence of LDR and NPL to levels not significantly change in the stock price. While the level of stock price changes is influenced by the LDR and NPL amounted to 2.10% while the remaining 97.90% is influenced by other factors.
A total of 3013 observations of NASDAQ stocks obtained directly from the Na- tional. Association of Security Dealers Automated Quotations were collected in 12 sectors and 101 industries, from 2010-2014. The NASDAQ Association makes the list of stocks available to the public through its website. The classifica- tion by sector consisted of: 1) basic industries (2.7%); 2) transportation (17%); 3) consumer non-durables (3%); 4) finance (24.9%); 5) consumer services (11.3%); 6) technology (9.7%); 7) consumer durables (1.5%); 8) health care (30.7%); 9) capital goods (7%); 10) miscellaneous (3.3%); 11) energy (2%) and 12) public utilities (2%). Income statement and balance sheet variables were extracted from Standard and Poor’s COMPUSTAT Database. COMPUSTAT North America provides income statement and balance sheet data for publicly-traded firms in the United States, including net income, stockholders’ equity, total assets, book value per share, taxes, total liabilities, net working capital, number of shares out- standing, earnings before interest and taxes, earnings per share, interest expense, revenue and cash balance. Annual stock returns, highest price per year, lowest price per year and closing price at the end of the year were obtained from the CRSP (Center for Research in Security Prices from the University of Chicago) database. CRSP provides security prices and security returns for U.S. stocks. Outcome variables of return on assets (ROA), return on equity (ROE), economic value added (EVA) and equity multiplier were computed from these financial statement variables.
We study how the volume of derivatives trading is associated with the return on assets (ROA), as well as the enterprise value proxied by abnormal return (AR), before and after the US Financial Crisis. Results suggest that before the crisis, the volume of over-the-counter trading, which tends to be less strictly regulated and thus can be more flexibly applied, is positively associated with AR and ROA, while exchange trading is not. After the financial crisis, exchange trading, which is more heavily regulated and thus has lower credit risks, is positively associated with AR and ROA. This implies that the kinds of derivatives products having a positive or negative effect on the enterprise value of financial institutions may vary according to each period of the economy. Therefore, in full consideration of the above, it is recommended that more appropriate alternatives to the regulations and inspections should be provided for derivatives products and trading methods of financial institutions.
Banking is the backbone of every economy. In India the establishment of Reserve Bank of India (RBI) (1935), Nationalization of major banks (1969) and liberalization policy (After 1991) are the major milestones in the development of Indian banking system. Indian government is monitoring and interferes in banking through policies of RBI. Raising the standard as per international norms and adapting the new technology are the major challenges in front of Indian banking sector. But in recent time, mostly after 2001, increasing percentage of Non Performing Assets (NPA) is emerging as a major threat to this sector. It is instancing day by day. This problem is comparatively significant in case of Public Sector Banks than the private Sector Banks. It is proven fact that increasing NPA is results in lowering Return on Assets (ROA).
Abstract—In our contribution, we model bank profitabil- ity via return-on-assets (ROA) and return-on-equity (ROE) in a stochastic setting. We recall that the ROA is an indication of the operational efficiency of the bank while the ROE is a measure of equity holder returns and the potential growth on their invest- ment. As regards the ROE, banks hold capital in order to prevent bank failure and meet bank capital requirements set by the reg- ulatory authorities. However, they do not want to hold too much capital because by doing so they will lower the returns to equity holders. In order to model the dynamics of the ROA and ROE, we derive stochastic differential equations driven by L´evy pro- cesses that contain information about the value processes of net profit after tax, equity capital and total assets. In particular, we are able to compare Merton and Black-Scholes type models and provide simulations for the aforementioned profitability indica- tors.
Samilogu and Demirgunes (2008) worked on the effects of working capital management on firm profitability in Turkey for the period 1998-2007. The findings showed that account receivable period and inventory period have significantly negative effects on firm profitability. This means that while these variables lengthen in periods, profitability decreases, or vice versa. Padachi (2006) examined the trend in working capital needs and profitability of firms to identify the causes for any significant differences between the industries. Return on Assets was used as a measure of profitability and the relation between WCM and corporate profitability for a sample of 58 small manufacturing firms, using panel data analysis for the period 1998-2003. Results showed that high investments in inventories and receivables are associated with lower profitability. Mathura (2009) investigated on influence of WCM components on corporate profitability using a sample of 30 firms listed on the Nairobi Stock Exchange (NSE) for the periods 1993-2008.The study used the Pooled OLS and the fixed effects regression model and found that there exists a highly significant negative relationship between when it takes a firm to collect cash from their customers and profitability, and a highly significant relationship between conversion of inventories into sales and profitability. This means that firms which maintain sufficiently high inventory level reduce costs of business interruption in the product process and loss of business due to scarcity of products. This reduces the firm’s supply costs and protects them against price fluctuations. Long, et al. (1993) developed a model of trade credit in which asymmetric information leads goods firm to extend trade credit for the buyer to verify product quality before payment. Their sample contained all industrial (SIC 2000 through 3999) firms with data available from COMPUSAT for the three year period ending 1987 and used regression analysis. They defined trade credit policy as the average time receivables are outstanding and measured this variable by computing each firm’s Days of Sales Outstanding (DSO), as accounts receivable per dollar of daily sales. To reduce variability, they averaged DSO and all other measures over a three year period. They found evidence consistent with the model. The findings suggest that producers may increase the implicit cost of extending trade credit by financing their receivables through payables and short-term borrowing.
Statistical results showed insignificant give information meaning that profitability is described by ROA published in financial reports less informative to investors in mengestimasi return. ROA ratio yet to describe the actual operating profit, because the calculation using the logging results profit ROA accrual basis. So investors are more likely to use the cashflow in taking investment decisions. The market does not respond to ROA as the information can change their beliefs, so as not to affect the stock price indicates that investors are not too make ROA as the main indicator in determining the investment options on shares and to predict the price of shares in the capital market. The results of this study are in line with research Tamuntuan, (2015) and rooms (2017) that the results show that the stock price is not influenced positively and significantly by ROA. This research does not support research Avdalovic and Milenkovic (2017); Purnamawati (2016) and Susana (2016 which indicates that the stock price is influenced in a positive and significant by ROA.
ROA have mean is 0.1002 with standard deviation is 0.006205650427871 which can be interpret that volatility of return is 0.006205650427871. CURRENT RATIO score 1.4668 for his mean and 0.0377 for his standard deviation in another word his volatility of return is 0.0377. From DEBT TO INCOME shown that his mean are 7.3628 and his standard deviation 0.5359 that shown that his volatility of return is 0.5359. While OPERATING MARGIN score 10.42 for his mean and 1.4627 for his standard deviation.
Influence Return on Assets (ROA) of Cash Dividend: Based on hypothesis testing has been done on the second hypothesis, it turns out Ho2 rejected and Ha2 received so that it can be concluded there is significant influence between the Return on Assets (ROA) of Dividend to the level of correlation is weak and directions positive relationship so the lower the Return on Assets (ROA), then the lower the cash dividend paid and vice versa. With the company has a high probability, the higher the percentage of dividends paid by the company to investors.
In order to measure the financial performance of a firm, ROE, ROA and Tobin`s Q have been used. Return on Equity and Return on Assets are accounting ratios that have often been used in the literature as measures for firm performance (Abor, 2005; Ebaid, 2009; Gill et al., 2011; Vatavu, 2015). Tobin`s Q is a market ratio that reflects past events and future market expectations and was used in several studies (Tian and Zeitun, 2007; Lin and Chang, 2009; Le and Phan, 2017. However, it is not possible to find an agreement in the literature about the measurement of ROE and ROA. Some researchers use earnings before interest and taxes (EBIT), like Umar et al. (2012), whereas other researchers, like Tian and Zeitun (2007) and Margaritis and Psillaki (2010) use Net Income. EBIT refers to the Operating Profit and is calculates as revenue minus expenses, while taxes and interests are excluded. The difference between Operating Profit and Net income is, that for Net Income the interest and taxes are also being deducted from the revenue and gives, therefore, the total profit of a company. For the reason of Table 1 Variable definitions and abbreviations
This study aims to find out: (1) Effect of Current Ratio (CR), Debt to Equity Ratio (DER), inflation and the IDR exchange rate on Return on Assets (ROA); (2) Effect of Current Ratio (CR), Debt to Equity Ratio (DER), inflation and the IDR exchange rate against Price to Book value (PBV); (3) Effect of Return on Assets (ROA) on Price to Book value (PBV); (4) Role of Return on Assets ROA as an intervening variable between Current Ratio (CR), Debt to Equity Ratio (DER), inflation and the IDR exchange rate with Price to Book value (PBV). The research sample is the automotive sub-sector manufacturing company and its components in the period 2008-2017 as many as 9 companies. The results of the study with panel data show that simultaneously CR, DER, inflation and the rupiah exchange rate affect ROA, partially CR and inflation have no significant effect on ROA, while DER and the IDR exchange rate have a significant effect on ROA. Simultaneously CR, DER, inflation and the IDR exchange rate affect PBV, partially CR, DER and inflation have no significant effect on PBV, while the IDR exchange rate has a significant effect on PBV. 12. The role of ROA as an intervening variable is very important in increasing the influence of CR, DER, inflation and the IDR exchange rate against Price to Book Value (PBV).
Foreign ownership or control of a business or natural resource in a country by individuals who are not citizens of that country or by companies whose headquarters outside that country. Boardman et al. (1997) found that foreign subsidiaries were more profitable and productive than their domestic counterparts. Kang and Stulz (1997) found that foreigners investing in Japan tend to underweight smaller and highly leveraged. Moreover, they found that holdings are relatively large in firms with large export sales. Gugler (1998) found significant and negative relationship between ownership concentration and profit margin. Barbosa and Louri (2005) found that ownership by foreign investors had a positive and significant effect on the profitability of firms. Douma et al. (2006) found that foreign firms performed better than domestic ones in terms of Return on assets (ROA) and Tobin’s Q. Based on it, the study develops the following hypothesis.
Iorpev and Kwanum (2012) examined the impact of capital structure on the performance of manufacturing companies in Nigeria. The annual financial statements of 15 manufacturing companies listed on the Nigerian Stock Exchange were used for the study which covered a period of 5 years from 2005-2009. Multiple regression analysis was applied on performance indicators namely return on assets (ROA) and profit margin (PM), as well as ratio of short-term debt to total assets (STDTA), ratio of long-term debt to total assets (LTDTA) and ratio of total debt to equity (TDE) as capital structure measures. The results showed that there is a negative but not significant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The work concluded that statistically, capital structure is not a major determinant of firm performance. The researchers made a good attempt because they were able to operationalize capital structure into all its constituents. However, the following weaknesses were observed. Firstly, profit margin (PM) was used as a measure of firm performance. The computation of profit margin ignores interest on debt and taxation. Therefore, it cannot adequately capture capital structure choice consequences. Again, the moderating variables were also ignored. In addition, the two regression equations used assumed that the relationship between the variables is necessarily linear- but the relationship could as well be quadratic, cubic, etc. There was no assurance that the relationship between the study variables was spurious because stationarity test was not conducted on the time series data.
Source: SPSS Correlation analysis results show that the values close to 0 are linear and weak between the two variables, while the values close to 1 indicate a linear and strong relation between the variables . According to the correlation test results in Table 3; there is a positive bidirectional and strong relation between return on equity ratio "ROE" and monetary liquidity ratio (r = 0.855), there is negative bidirectional and very strong relation between return on equity ratio "ROE" and loan to deposit ratio 'ltd' (r = -0,995), there is positive bidirectional and very strong relation between return on assets ratio "ROA" and monetary liquidity ratio (r = 0.942) and there is negative bidirectional and very strong relation between return on assets ratio "ROA" and loan to deposit ratio 'ltd' (r = -0,981).
Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. Net income is derived from the income statement of the company and is the profit after taxes. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The higher the return, the more efficient management is in utilizing its asset base. Based on the table and graph above, we can see that Sunway assets management is decrease from 2011 to 2012 which is from 12.43% to 9%. It continue to drop in 2013 and 2014 which is 7.44% and 7.33% respectively. But it has improved in 2015 where it has risen up to 8.42%.
4. Research Problem and Questions This study tries to assess factors that affect the profitability of Islamic banking industry in Sri Lanka measured in terms of Return on assets (ROA), return on equity (ROE), and earnings per share (EPS) with considering internal and external factors such as Bank’s size, gearing ratio, non-performing loans (NPL) ratio, operational efficiency, asset composition, asset management, capital adequacy ratio, deposit ratio, gross domestic product (GDP), and consumer price index (CPI). The question addressed here is whether the above mentioned factors have an association with the profitability of Islamic banking industry in Sri Lanka. 5. Research Objectives
Licensed under Creative Common Page 32 The return on assets provides information on how efficiently a bank is being run, because it indicates how much profits are generated on average by each currency amount of assets. Acceptable ROAs vary by sector. Banks balance sheets contain massive amounts of assets, and because of that their ROAs always look small (Tycho Press,2013). In banking, for example, a ROA of 1% or better is a considered to be the standard benchmark of superior performance (Choudhry, 2012, Bloomsbury, 2009). “ROA tells us what earnings were generated from invested capital (assets). It is one of the standards of gauging a bank’s profitability. An excellent ROA is in the range of 1.2 to 1.4 per cent.” (Goel, 2014, p. 159).
Based on the investigation in over 30 studies measuring firm performance in the basic industry and chemicals sector, there are 16 ratios used to measure the performance in the sector. The used ratios include Return on Assets (ROA), Return on Equity (ROE), Return on Sales (ROS), Return on Investment (ROI), Net Profit Margin (NPM), Operating Cash Flow (OCF), Earning Per Share (EPS), Operating Profit Growth (OPG), Sales Growth (SG), Return on Capital Employed (ROCE), Cash Stocks (CSA), Total Assets Turnover Ratio (TATO), Labor Productivity (LP), Profit per Employee (PPE), Gross Profit Margin (GPM),and EBITDA Margin. This study also used secondary data from Indonesia Stock Exchange (IDX) in the form of firm annual report, which is the annual data from 2012 to 2016. From the basic industry and chemicals sector, there are 53 firms’ data collected out of 66 firms listed on IDX. The selection of samples was based on the availability of data.
In this model we see that the value of the F test is less than 0.05 which shows this model is good fit. The value of R-square which shows the collective variation in the depended variable (earning per share) due to the independent variables (assets to equity ratio, ROE, ROA, investment to total assets, on performing loan, risked based assets, funding cost, cost to income ratio, CPI, Interest rate Tier 1)is 0.8308. This means that the collective affect of all independent variable on the depended variable is 83 %. Value of adjusted R square is 0.7876 which is primarily the adjusted value of R-Squared as per the sample size. In our present analysis this value is more reliable. Reserve, funding cost and return on assets is highly highly significant impact on Earnings per share of the various financial institutions and return on equity and investment to total assets is highly significant because its lie on 5%.