Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 26 Sep 2017 My Price 6.00

ROE for Company

A decomposition of ROE for Company A and Company B is as follows:

   

Company A

  

Company B

FY15

FY14

FY15

FY14

ROE

26.46%

18.90%

26.33%

18.90%

Tax burden

0.7

0.75

0.75

0.75

Interest burden

0.9

0.9

0.9

0.9

EBIT margin

7.00%

10.00%

13.00%

10.00%

Asset turnover

1.5

1.4

1.5

1.4

Leverage

4

2

2

2

An analyst ismost likelyto conclude that:

A. Company A’s ROE is higher than Company B’s in FY15, and one explanation consistent with the data is that Company A may have purchased new, more efficient equipment.

B. Company A’s ROE is higher than Company B’s in FY15, and one explanation consistent with the data is that Company A has made a strategic shift to a product mix with higher profit margins.

C. The difference between the two companies’ ROE in FY15 is very small and Company A’s ROE remains similar to Company B’s ROE mainly due to Company A increasing its financial leverage.

Answers

Maurice Tutor
(5)
Status NEW Posted 26 Sep 2017 10:09 PM My Price 6.00

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