Use the following data to compute each firm's net profit margin, total asset turnover, equity multiplier, and return on equity. (Note: The following dollar values are expressed in millions of U.S. dollars.) Firm A B C Common Equity Sales $28,141 $8,700 $10,636 $1,563 $5,641 $2,431 $18,158 $180 $28,199 $10,669 $9,516 $1,496 Total Assets Net Income Net Profit Margin 14.70% 0.99% Total Asset Turnover 3.22x 0.34x Referring to this data, which of the following conclusions is true about the companies' ROES? Equity Multiplier 3.23 2.64 Return on Equity Firm A's equity multiplier indicates that it has the lowest debt ratio of the three firms. O Compared to firms B and C, company A's exceptional ROE performance appears to result from its superior efficiency in using its asset base and its heavily leveraged capital structure. O Compared to firms B and C, company A does the best job of containing its costs and managing its tax obligations. O Compared to companies A and C, company B uses more financial leverage and exhibits the highest debt ratio.
Use the following data to compute each firm's net profit margin, total asset turnover, equity multiplier, and return on equity. (Note: The following dollar values are expressed in millions of U.S. dollars.) Firm A B C Common Equity Sales $28,141 $8,700 $10,636 $1,563 $5,641 $2,431 $18,158 $180 $28,199 $10,669 $9,516 $1,496 Total Assets Net Income Net Profit Margin 14.70% 0.99% Total Asset Turnover 3.22x 0.34x Referring to this data, which of the following conclusions is true about the companies' ROES? Equity Multiplier 3.23 2.64 Return on Equity Firm A's equity multiplier indicates that it has the lowest debt ratio of the three firms. O Compared to firms B and C, company A's exceptional ROE performance appears to result from its superior efficiency in using its asset base and its heavily leveraged capital structure. O Compared to firms B and C, company A does the best job of containing its costs and managing its tax obligations. O Compared to companies A and C, company B uses more financial leverage and exhibits the highest debt ratio.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Use the following data to compute each firm's net profit margin, total asset turnover, equity multiplier, and return on equity. (Note: The following
dollar values are expressed in millions of U.S. dollars.)
Common
Equity
$8,700 $10,636 $1,563
$28,141
B
$5,641
$2,431 $18,158 $180
C $28,199 $10,669 $9,516 $1,496
Firm
A
Total
Assets
Net
Sales Income
Net Profit
Margin
14.70%
0.99%
Total Asset
Turnover
3.22x
0.34x
Referring to this data, which of the following conclusions is true about the companies' ROES?
Equity
Multiplier
3.23
2.64
Return on
Equity
Firm A's equity multiplier indicates that it has the lowest debt ratio of the three firms.
Compared to firms B and C, company A's exceptional ROE performance appears to result from its superior efficiency in using its asset
base and its heavily leveraged capital structure.
Compared to firms B and C, company A does the best job of containing its costs and managing its tax obligations.
Compared to companies A and C, company B uses more financial leverage and exhibits the highest debt ratio.
Expert Solution
Step 1
A mathematical relationship between two variables is a ratio analysis. Investors use this analysis to gauge a company's financial performance.
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