Question
In: Finance
The following is focused on RoE and its decomposition. Your junior analyst has compared data for...
The following is focused on RoE and its decomposition.
Your junior analyst has compared data for two years on Deere & Company
| 2019 | 2015 | |
| Net Income | $3,253 | $1,940 |
| Net Sales | $39,258 | $28,863 |
| Pre tax income | $4,088 | $2,780 |
| EBIT | $5,554 | $3,460 |
| Shareholders equity | $11,417 | $6,758 |
| Average assets | $71,560 | $59,642 |
a. What is the trend in Deere’s RoE. Account for the change in terms of tax burden, interest burden, margin, turnover and financial leverage. Also, comment on the change in RoA.
b. Using this information, what are your thoughts about the current holding that you have in Deere & Company? [Sell vs. hold vs. add]
Solutions
Expert Solution
RoE = Net Income / Equity Value
2015 = 1940 / 6758 = 28.71%
2019 = 3253 / 11417 = 28.49%
ROA = Net Income / Total Assets
2015 = 1940 / 59642 = 3.25%
2019 = 3253 / 71560 = 4.55%
Return on Equity is comparitively same between between 2015 and 2019. But Return on Assets has increased. it has increased by 4.55% - 3.25% = 1.3% in the last 4 years.
The investor should add more.
jeff jeffy answered 2 years agoRelated Solutions
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