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 Total Asset Leverage Return on Entity 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 Total Asset Leverage Return on Entity 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
Related questions
Question
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 1 images
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education