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.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter6: Accounting For Financial Management
Section: Chapter Questions
Problem 6MC: Calculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC)....
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Question
![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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2daa4f7c-8d96-46b5-9864-286c39a2a80a%2F99b4b3a2-ceba-4087-861b-eed912894d3e%2F1o5d9ce_processed.jpeg&w=3840&q=75)
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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