1) A given ratio, once calculated, can be compared in one of three ways. Give each...

1) A given ratio, once calculated, can be compared in one of three ways. Give each of the three ways the ratio can be compared

2) When will a firm’s ROA and ROE be equal to one another

Expert Solution

1. A given ratio can be compared in three ways-

A. Comparison with industry ratios-financial ratio of a company is to be compared with the industry ratio in order to find out the performance of company with relation to industry standards.

B. Comparison with the peers-financial ratio of an individual company is to be compared with the financial ratio of its peers, in order to find out the underperformance or outperformance of a company in relation to its competitors.

C. Comparison with the same company ratio in past years- Financial ratio of the company's corresponding year is to be compared with the financial ratios of company's previous years in order to compare its performance with past performance of the same company.

2. Return on assets and Return on equity of a company would be equal in case, when there is is no financial leverage and there is no payments which are made to the debtholders of the company as there are no debtholders in the company.

When the company is completely unlevered, it means that the return on asset and return on equity of the company would be same.

When the company is completely financed with equity capital, the Return on Equity and the Return on Asset would be same.

jeff jeffy answered 1 year ago

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1) A given ratio, once calculated, can be compared in one of three ways. Give each...

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