Although Company A and Company B have similar returns on 口 equity, what is the primary driver for each company having a higher return than the industry? Net Proft Entity Total Asset Leverage Return on Margin Turnover Multiplier Equity Company A 7% 1.25 2.5 21.88% Company B 15% 1.30 1.3 25.35% Industry 8% 1.30 1.5 15.6% O Company A is more efficient at using its assets to generate sales, while Company B uses a significantly higher amount of debt to purchase assets. O Company A is more efficient at using its operations to generate profits, while Company B is more efficient than the industry at using its assets to generate sales. O Company A and Company B are both more efficient at using their assets to generate sales as compared to the industry average. O Company A uses a significantly higher amount of debt to purchase assets, while Company B has better operating efficiency.
Although Company A and Company B have similar returns on 口 equity, what is the primary driver for each company having a higher return than the industry? Net Proft Entity Total Asset Leverage Return on Margin Turnover Multiplier Equity Company A 7% 1.25 2.5 21.88% Company B 15% 1.30 1.3 25.35% Industry 8% 1.30 1.5 15.6% O Company A is more efficient at using its assets to generate sales, while Company B uses a significantly higher amount of debt to purchase assets. O Company A is more efficient at using its operations to generate profits, while Company B is more efficient than the industry at using its assets to generate sales. O Company A and Company B are both more efficient at using their assets to generate sales as compared to the industry average. O Company A uses a significantly higher amount of debt to purchase assets, while Company B has better operating efficiency.
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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Transcribed Image Text:Although Company A and Company B have similar returns on
口
equity, what is the primary driver for each company having a
higher return than the industry?
Net Proft
Entity
Total Asset Leverage
Return on
Margin
Turnover
Multiplier
Equity
Company A
7%
1.25
2.5
21.88%
Company B
15%
1.30
1.3
25.35%
Industry
8%
1.30
1.5
15.6%
O Company A is more efficient at using its assets to generate
sales, while Company B uses a significantly higher amount of
debt to purchase assets.
O Company A is more efficient at using its operations to
generate profits, while Company B is more efficient than the
industry at using its assets to generate sales.
O Company A and Company B are both more efficient at using
their assets to generate sales as compared to the industry
average.
O Company A uses a significantly higher amount of debt to
purchase assets, while Company B has better operating
efficiency.
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