This assignment is about financial analysis. I am supposed to download and compare the financial&annual reports for last 3 years of two companies in the same professional field. I have chosen Pair 2-...

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    Question 1
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    Question 2
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    Question 3
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    Question 4
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Question 1
· Wealth creation refers to the process in which a stable source of revenue is created using assets over a long period. By comparing the annual report of both the companies we can see that there has been an increase in the revenue as well as the profit and earnings per share in the case of both the companies. There has been an increase in dividend payments for both companies. Moreover, there has been an increase in assets for both companies. Both companies have reduced their interest obligation in the last year.
However, the difference lies in the fact that the dividend payout ratio for Ramsay health Care is much lower than that of Sonic health care. This shows that Sonic health care has fewer growth opportunities as they pay out more money to the shareholders rather than using that money for profitable investments. Moreover, the return on assets of Ramsay health Care is considerably more than that of Sonic health care. This shows better utilization of resources on part of Ramsay health care.
· The formula of return on asset used is operating income divided by total assets. This shows the revenue the company can generate from its core operations. We can see that the return on assets for Sonic Health Care has decreased from around 11.5 percent to around 10.8 percent. This is because the growth of revenue is not in line with the increase in assets. There is a large amount of depreciation expense as well. However, for Ramsay health care the return on assets has increased from around 13.11 percent to 13.26 percent. This is because the revenue has increased considerably for Ramsay Health Care. They have done better utilization of resources.
· As the Ramsay Health Care can better utilize its resources as compared to Sonic health care, we can say give Ramsay health care rank 1 and therefore rank 2 to Sonic health care. The operational efficiency of Ramsay health Care will enable them to create wealth for their shareholders in the future. Ramsay health care has seen a huge growth in the last few years which has increased the shareholder’s returns. It has better profit margins and performs better in profitability ratios.
Question 2
· There are many limitations to using the return on assets as a measure for performance. Firstly, in the case of those industries which require significant capital investment the return on asset tends to be quite low. Moreover, there are many versions of the formula for return on assets, which reduces the clarity for investors using this as a measure to figure out the performance of the company. There are other ratios such as gross profit ratio, operating profit ratio, net profit ratio, price to earnings ratio,...