Question

In: Finance

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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