Profitability and Credit Risk Ratios of Lyft and Uber

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The return on equity (ROE) depends on operating efficiency, asset use efficiency, and financial leverage. The DuPont analysis highlights that the ROE can be determined by multiplying the return on assets with the Equity multiplier, but the return on assets is the profit margin multiplied by the total assets turnover. Uber’s ROE was -249.99 and -51.16 respectively in 2019 and 2020. The ratios were negative as there were losses in both years, which resulted in negative profit margins and the ROE.
Return on assets (ROA) is determined by dividing the profits after taxes by the assets (NOA). Uber suffered losses in 2019 and 2020, but there was a profit in 2018. Uber’s net operating assets ratio was 5.06 in 2018 and then decreased to -30.52 in 2019 and increased slightly to -30.82 in the 2020 financial year. The net loss in 2020 was $ (6,768) million compared to $ (8,506) million in 2019 and a profit of $ 997 million.
The net operating profit margin is the net operating profit (loss) divided by the sales revenue. This was -29.07 in the financial year ended December 31 2018 but then decreased further to -66.12 in 2019 and -43.66 in December 2020. The net operating Losses were $(3,033), $(8,596) and $(4,863) million in 2018 to 2020 respectively (Uber, 2021). Thus in 2020 operating profit margin was $(4863)/ $ 11,139 million, which is -43.66%. On the other hand, the revenue increased from $10,433 to $13,000 million in the years 2018- 20-19. The operating profit margin was negative in the last three financial years Uber reported net operating losses. Thus, Uber is making losses on each dollar of revenue and this is a concern as it affects the company’s ability to meet its financial obligations in the future.
The assets turnover ratio is determined as sales divided by the assets. For the Uber company the assets turnover ratio was 0.53, in 2018 then 0.47 in 2019 and 0.34 in 2020. A high asset turnover iodinates the company is efficient in generating sales or revenues, and for Uber the ratio has declined from the past three years and this is a concern.
The debt-to-equity is determined as the total debt divided by the total stockholders’ equity meaning a high level and reduced equity are associated with a higher debt -to- equity ratio In 2020. Uber’s debt to equity ratio was 0.81 and Lyft’s was 0.61 implying that there $ 0.81 in debt for every dollar of equity for Uber and $0.61 in debt for a dollar of equity in Lyft. A high debt to equity ratio indicates that a company is relying heavily on debt financing to fund growth and operations. The challenge with this is that it can cause volatile earnings because of the interest expense and may the affect ability to meet financial obligations. Lyft’s debt-to-equity increased from 0.17 to 0.61 in 2020 because the company increased its holdings

Debt-to-Equity



18-Dec

19-Dec

20-Dec

Uber

-0.95

0.55

0.81

Lyft

0

0.17

0.61

 Free cash flow is determined as cash flow from operations (operating cash flow) minus the net property, plant & equipment expenses (capital expenditures). Uber’s...