Consider the following two companies: (#s in $millions) Company A Company B Sales 5,990 10,500 EBIT...

Consider the following two companies:

(#s in $millions)	Company A	Company B
Sales	5,990	10,500
EBIT	600	1120
Interest	40	320
Earnings Before Tax	560	800
Taxes @ 40%	224	320
Net Income	336	480

Debt	400	3,200
Equity	1,600	800

Part (a) Calculate each company's ROE, ROA, and ROIC

Company A
ROE
ROA
ROIC

Company B
ROE
ROA
ROIC

Part (b)

Why is company B’s ROE so much higher than A’s? Does this mean B is a better company? Why or why not?

Hint: ROE = Profit Margin X Asset Turnover X Financial Leverage

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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