Assessing the past performance of a security or asset Research Paper

Assessing the past performance of a security or asset - Research Paper Example Secondly, asset turnover is an important reflection of the sales against assets relationship which can be used to demonstrate performance. The other ROE tool is the financial leverage function that highlights the measure of assets against shareholders’ equity. ROE is therefore a fair representation of elements of the balance sheet as well as the income statement since the variables uses in these rations are picked from the two performance reports. To obtain ROE, the three ratios are multiplied to demonstrate the summary of the performance. From such an assessment, it is possible for investors to monitor the performance of the investment in which they have an interest on. Alternatively, another important performance indicator usually applied in economics is the return on assets (ROA). Simpler in calculation than ROE, ROA reflects actual performance that every investment unit has over a particular period. One of the two ways to obtain ROA is multiplication of asset turnover with the profit margin which reflects performance with respect to total return element on assets (Higgins 2001, p37). On the other hand, net income against assets gives the same consideration. Apparently, this tool of performance is also a reflection of variables of the balance sheet as well as the income statement which account for performance over a specific period. Further asset turnover analyses through a number of control ratios enables consideration of specific asset types for clearer asset performance. Some of these control ratios include; inventory turnover, fixed asset turnover, collection period, days’ sales in cash and payables period. Liquidity ratios also assist in determination of performance which determines the management’s application of returns in furthering business and investment. In terms of operating capital requires a certain sufficiency level