Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing afirm's net income by the firm's shareholder's equity, and it can be subdivided into the key factors that drive the ROE. Investors and analysts focus onthese drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the variousterms of the DuPont equation for three companies:Company ACompany BCompany CROE12.0%15.5%21.5%Profit Margin57.3%58.2%58.0%X Total Assets Turnover X Equity Multiplier9.810.210.32.142.613.60Referring to these data, which of the following conclusions will be true about the companies' ROES?O The main driver of Company A's inferior ROE, as compared with that of Company B's and Company C's ROE, is its use of higher debtfinancing.O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its efficient use of assets.O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its greater use of debtfinancing.

The DuPont equation is a method by which different ratios are used to arrive at the ROE. This can be…

Referring to these data, which of the following conclusions will be true about the companies' ROES? O The main driver of Company A's inferior ROE, as compared with that of Company B's and Company C's ROE, is its use of higher debt financing. O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its efficient use of assets. O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its greater use of debt financing.

Referring to these data, which of the following conclusions will be true about the companies' ROES? O The main driver of Company A's inferior ROE, as compared with that of Company B's and Company C's ROE, is its use of higher debt financing. O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its efficient use of assets. O The main driver of Company C's superior ROE, as compared with that of Company A's and Company B's ROE, is its greater use of debt financing.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 5P

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