Shisha Wasabi Financial Statements Determine Essay

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0703 = 7.03%

7.03%

2,390 / 27,000

= .0885 = 8.85%

8.85%

The next ratio used in the analysis is Return on Assets. This ratio also shows significant reduction year-over-year from $14.57% in 2008 to 10.58% in 2009, a reduction of 27%. This indicates the internal systems and processes within Shisa Wasabi are more anemic than the gross margin calculation had shown. It also indicates that the assets may be aging quickly and needing repair to continually stay at a level of deliver higher ROA year-over-year. Unfortunately for this company their ROA is declining nearly a third in just a year, which signals significant slowdowns and lack of effiencies internally.

Return on Assets Calculations

Net Profit Margin

Calculation

2009

Calculation

2008

Net Income

Total Assets

2,100 / 19,400

=.1058 = 10.58%

10.

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58%

2,390 / 16,400

= .1457= 14.57%

14.57%

Ret

The third financial ratio used to evaluate the potential investment in Shisa Wasabi is Return on Equity. Just as the previous two ratios showed, this also has a reduction occurring between 2008 and 2009. Dropping from 23.96% in 2008 to 19.36% in 2009, this ratio indicates ROE experienced a 19.1% reduction, which is very significant. Of the three ratios, the reduction of ROE is the most severe and critical in terms of an investment decision. It says this company is very risky and there is a very good chance any funds invested in it will not earn a return. It could be argued an investment of $500,000 in a worst case scenario, could end up being.....

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