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.
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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![Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a
firm'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 on
these drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the various
terms of the DuPont equation for three companies:
Company A
Company B
Company C
ROE
12.0%
15.5%
21.5%
Profit Margin
57.3%
58.2%
58.0%
X Total Assets Turnover X Equity Multiplier
9.8
10.2
10.3
2.14
2.61
3.60
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0b683749-58e5-4e30-bd6b-95e0226f4526%2F6b470de9-f52f-4273-a642-d8bd6286ea7d%2Fen2jc0d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Most investors and analysts in the financial community pay particular attention to a company's ROE. The ROE can be calculated simply by dividing a
firm'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 on
these drivers to develop a clearer picture of what is happening within a company. An analyst gathered the following data and calculated the various
terms of the DuPont equation for three companies:
Company A
Company B
Company C
ROE
12.0%
15.5%
21.5%
Profit Margin
57.3%
58.2%
58.0%
X Total Assets Turnover X Equity Multiplier
9.8
10.2
10.3
2.14
2.61
3.60
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.
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