Answered: If competition causes all companies to…

If competition causes all companies to have similar ROEs in the long run, wouldcompanies with high turnovers tend to have high or low profit margins? Explainyour answer.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 13DQ

See similar textbooks

Related questions

Q: The barrier to entry that helps reduce the threat of new entrants for an incumbent firm using a…

A: Cost Leadership: in cost leadership a company has lower cost of operation. Cost leadership company…

Q: You are running a company with two divisions. One division is high risk and the other division is…

A: Risk - Return Relationship: As per the risk-return relationship or risk-return tradeoff, the higher…

Q: Which of the following typically is true for profitability ratios? a. Growth stocks have lower price…

A: Profitability ratios are calculated to assess the company's ability to generate incomes relative to…

Q: The margin of safety can be defined as the amount by which sales can decrease before losses are…

A: Total sales of a company can be divided into Margin of safety sales and break even sales.

Q: Which is true regarding Market efficiency? A well-functioning market should have access to the…

A: Market Efficiency is the degree of efficiency of market to which it reflect the all available…

Q: The current ratio and the quick or acid-test ratio may be too high for the overall good of the…

A: The current ratio and the quick ratio are a measure of the liquidity of the company. The current…

Q: Which of the following situations is most likely to pose a problem for companies that use return on…

A: Return on investment is computed as the average return generated dividend by the investment made in…

Q: Which of the following events would cause a company's cost of retained earnings to increase? Group…

A: When profit increases and divided is reduced, it leads to increase in retained earnings.

Q: Is this situation consistent with a monopolistically competitive firm maximizing profit? If yes, is…

A: Market Economy- A market economy is an economic system in which market forces, rather than a central…

Q: If markets are truly efficient, does it matter whether firms engage in earnings management? On the…

A: If the company concentrated on earnings management then the market is not truly efficient.

Q: New entrants are attracted when the organizations’ profits are well in excess of the cost of…

A: In today's world of finance and commerce barriers to entry is a very strong force that determines…

Q: Can Retained Earnings grow too large? If so, what strategies might management take to reduce it

A: Answer: Retained earnings is the cumulative or collective profit hold by company in shareholders…

Q: Which of the following statements is usually correct? A low receivables turnover is good for the…

A: Solution Concept Debt to equity ratio is mathematically given as =total debt / total equity A…

Q: Would the profit change associated with sales changes be larger or smaller if a firm increased its…

A: Operating leverage refers to fixed cost level associated to the operations of a company. A company…

Q: Given that a breakeven sales level is not a sales prediction, explain why it is so widely used in…

A: Break-even sales are the sales at which company earns no profit no loss. In other words, break-even…

Q: Explain what the significance of having a high/low Price-to-Book ratio means about the company's

A: Price/Book value is ratio of stock price in actual market and book value is value of share as books…

Q: Which of the following is NOT related to (or contributes to) business risk? Remember that a…

A: Business risk refers to a company's or organization's vulnerability to factors that could reduce…

Q: In an oligopoly market, when firms choose to compete (rather than collude) their profits • usually…

A: Oligopoly Market : In oligopoly, There are few large sellers who occupy the major share in the…

Q: Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of…

A: When the company’s ROIC is below the WACC, it indicates that the value is destroyed because the…

Q: Show with a formula that describes the average estimatesustainable sales growth. Then, make a clear…

A: Sustainable growth means Growth for the future customers such as petroleum industries advertise…

Q: profit margin,

A: In simple words, profit margin refers to the amount of profit that a company makes on its sales. If…

Q: Which of the following statements is most correct? JUST EXPLAIN ONE ANSWER WHICH IS INCORRECT. a.…

A: Following is the answer to the given question

Q: Which of the following situations is most likely to pose a problem for companies that use return on…

A: Solution Concept Return on investment Return on investment means the return the…

Q: Can you identify a possible explanation for the company’s declining profits? If so, what is it?

A: Company's declining profits can be possible due to overhead expenses. Overhead costs are the…

Q: The assumptions on which cost-volume-profit analysis is based appear to be most valid for…

A: Cost volume profit analysis in the business shows relationship between costs, number of units and…

Q: The difference between the market value of the firm and the amount of money invested in the firm is…

A: An investor takes into consideration the market value of the company to decide whether investment…

Q: Consider a company faced with a competitor's price reduction. Should the company also reduce price…

Q: The globalization of markets, even for services, has increased the number of competitors and often…

A: Global market includes the domestic market as well as international markets. The globalization of…

Q: “A customer-profitability profile highlights those customers a company should drop to improve…

A: Customer profitability analysis: Customer profitability analysis is a management accounting tool…

Q: Inflation accounting is favored by modern financial analysts over the historical cost accounting as…

A: Following are the disadvantages of historical cost accounting in comparison with inflation…

Q: Which of the following best describes the potential impact of business risk on Earnings Quality?…

A: Earnings Quality: The earnings quality or quality of earnings refers to the reliability with which a…

Q: To compete successfully for the better stockholders and better lenders, a business would need: Good…

A: Financial ratios assist investors and lenders in deciding which companies to invest in or lend to.…

Q: Which of the followings is NOT an advantage of financial institutions in consumption smoothing? A.…

A: Financial Institutions Institutions involved in financial transactions such as lending and borrowing…

Q: Which of the following would be a viable way to earn abnormally high trading profits if markets are…

A: Semi-strong form EMH: According to this form all the information that is available to public is…

Q: What are the advantages/disadvantages of using the market multiples method to estimate the value of…

A: It is a valuation strategy that decides the distinctive market values for similar organizations.…

Q: What are some advantages of invetsting in industy competitors? ie., You own stock in Walgreens and…

A: Investors often use the top-down approach to narrow down on an industry or industries that are…

Q: Empirical evidence indicates that the returns to shareholders of the target firm vary significantly…

A: According to Empirical evidence, the shareholders of the taget firm have the advantage of earning…

Question

If competition causes all companies to have similar ROEs in the long run, would
companies with high turnovers tend to have high or low profit margins? Explain
your answer.

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Can you identify a possible explanation for the company’s declining profits? If so, what is it?
6. What will be the impact on a company's profit if sales mix shifts between low margin and high margin products? Explain different possible scenarios.
Questions: Does a low return on sales indicate a weak company? (Y/N). Explain your answer. Do greater Net sales always result in greater net income? (Y/N) Why? Examine the financial information above and comment on the item that you find interesting.
Changes in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.
Is this situation consistent with a monopolistically competitive firm maximizing profit? If yes, is it consistent with LR? P
Show with a formula that describes the average estimatesustainable sales growth. Then, make a clear description and systematically about the relationship between its variables. What if a company doesn't experiencing “retention profit”?
From a strategic management perspective, the primary reason a firm performs CVP analysis is to find the level of sales that: Multiple Choice Promises a satisfactory growth in revenue. Produces a desired (or targeted) level of profit for the firm. Reduces the threat of bankruptcy. Will allow the firm to compete in a market place. Will just cover all fixed costs.
Which of the following is not one of the benefits of breakeven analysis to businesses?A. Determining the lowest selling priceB. Choosing the most profitable product typesC. Determination of firm valueD. Differentiation of fixed variable expensesE. Conducting decline in sales analysis
In competitive markets economic profit becomes zero in the long-run. However, it is also possible for some firms to earn a greater accounting profit and to enjoy a higher producer surplus than other firms. How is it possible? Explain in detail. explain it examples
Would a firm that has many good investment opportunities be likely to have ahigher or a lower dividend payout ratio than a firm with few good investment opportunities?Explain.
Why do managers want a high ROI, and how would they strive to increase their ROI?
With regard to critical success factors, which one of the following would not be considered a financial measure of success? Group of answer choices Cash flow. Growth in industry productivity. Sales growth. Earnings growth. Reduction in the cost of inventory.