MSc in Finance (CF Stream 2)
Chanyuan XIANG
Student ID: 201406846
Homework 1 of Corporate Finance
1.
Bank:
E&C Utility:
Airline:
Software Developer:
Since ROE is usually used in comparing firms in the same industry, the results here cannot efficiently indicate any useful information. Yet, I still think that the relatively low ROE of Airline might indicate its problems in profitability.
So, Software Developer has the highest profit margin, inferring that it add more value to its products then other firms. And Airline has the lowest profit margin, so the value it adds to its products is relatively low.
From the data above, I find that asset turnover of Bank is relatively low, indicating that Bank has a low efficiency in deploying its assets to generate revenue.
Bank has a high financial leverage but this might be a normal condition, since over 90% of its assets are current assets and thus Bank has a high level of liquidity. Considering this, it is not unusual for Bank has a high financial leverage. Apart from Bank, Airline also has a relatively high financial leverage, indicating that it replies heavily on debt to raise capital.
2. From my analysis, I think Airline is in trouble. Firstly, its ROE is relatively low, indicating that there might be some problems with its profitability. Secondly, its profit margin is really low, showing that it has some problems in creating value or in controlling its operational costs. Thirdly, as an airline company, it has a
