Question

In: Finance

1) Based on the calculation , discuss relationship between ROA anfd ROE A company Z company...

1) Based on the calculation , discuss relationship between ROA anfd ROE

A company

Z company

Average of ROA

12%

10%

Standard deviation of ROA

5.89%

5.57%

Standard deviation of ROE

8.45%

7.13%

2) which company has higher ROE and what is the reason of it?

3) which company has more volatility of roe and what is the reason of it ?

Solutions

Expert Solution

1. Return on assets and Return on equity will mostly be having a positive relationship and when the return on asset will be higher, it will mean that the assets are used efficiently by the company, so Return on equity will be most probably higher if the debt financing is properly managed.

In this case, it can be seen that there is an average of Return of asset which is higher for company A than company Z. So it can be said that Return on asset will be leading to efficiently use of the Assets of the company in order to maximize the profit of the company and return on equity are only calculated after payment of tax and interest as well as also additional payments, so if interest payments and expenditures are managed properly and efficiently, it would mean that the return on equity will also be higher for company A than company Z, and if the the standard deviation is also higher, it would mean that these return on equity are subject to fluctuations from their mean


Related Solutions

Suppose Bank Z has ROE of 12% and ROA of 1%. If capital-to-asset ratios (simply called...
Suppose Bank Z has ROE of 12% and ROA of 1%. If capital-to-asset ratios (simply called capital ratios) above 9% are considered to be well capitalized, is this bank well or poorly capitalized? Please support your answer with numbers.
This particular company has an ROE of 13.25%, but an ROA of 1.47%. It has 75.5%...
This particular company has an ROE of 13.25%, but an ROA of 1.47%. It has 75.5% of its assets in Long-term Investments, and most of the rest is in Cash and Cash Equivalents. On the Liabilities side, Current Liabilities almost match Long-term Investments. It has an Equity Multiplier of 9.15. This company is a/an: Commercial Bank Savings & Loan Investment Bank Insurance Company Investment Company
Q1: ROE, ROA, ROIC are given for Company A and Company B (unrelated to Flash Memory)....
Q1: ROE, ROA, ROIC are given for Company A and Company B (unrelated to Flash Memory). Company A Company B Interest rate 6.0% 8.0% Income tax rate 17.0% 17.0% Debt 585 100 Equity 348 833 TOTAL LIAB+EQUITY 933 933 EBIT 86 86 - Interest expense 35.1 8 Earnings before tax 50.9 78 - Income tax 8.7 13.3 Earnings after tax 42.2 64.7 Ratio Fraction Ratio Fraction Numerator Denominator RETURN ON EQUITY (ROE) 12.1% 42.2/348 7.8% 64.7/833 Earnings after tax Equity...
Company has an ROA of 8.4 percent, a profit margin of 9.50 percent, and an ROE...
Company has an ROA of 8.4 percent, a profit margin of 9.50 percent, and an ROE of 15.50 percent. Requirement 1: What is the company’s total asset turnover? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)   Total asset turnover times Requirement 2: What is the equity multiplier? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)   Equity multiplier times
What happens to ROA / ROE / ROIC if the company needs additional funding, which it...
What happens to ROA / ROE / ROIC if the company needs additional funding, which it raises through additional equity ?
Define and differentiate between return on total assets (ROA), return on equity (ROE), and earnings per...
Define and differentiate between return on total assets (ROA), return on equity (ROE), and earnings per share (EPS). Which measure is probably of greatest interest to owners? Why?
1.     [ROA and ROE models and Ratio Components] The Salza Technology Corporation successfully increased its “top...
1.     [ROA and ROE models and Ratio Components] The Salza Technology Corporation successfully increased its “top line” sales from $375,000 in 2012 to $450,000 in 2013. Net income also increased as did the venture’s total assets. You have been asked to compare the financial performance between the two years. Salza Technology Corporation Annual Income Statements (in $ Thousands) 2012 2013 Net sales $375 $450 Less: Cost of goods sold -225 -270 Gross profit 150 180 Less: Operating expenses -46 -46...
1.     [ROA and ROE models and Ratio Components] The Salza Technology Corporation successfully increased its “top...
1.     [ROA and ROE models and Ratio Components] The Salza Technology Corporation successfully increased its “top line” sales from $375,000 in 2012 to $450,000 in 2013. Net income also increased as did the venture’s total assets. You have been asked to compare the financial performance between the two years. Salza Technology Corporation Annual Income Statements (in $ Thousands) 2012 2013 Net sales $375 $450 Less: Cost of goods sold -225 -270 Gross profit 150 180 Less: Operating expenses -46 -46...
The Rangoon Timber Company has the following ratios: Net sales/Total assets = 2.26; ROA 8.95%; ROE...
The Rangoon Timber Company has the following ratios: Net sales/Total assets = 2.26; ROA 8.95%; ROE 17.09%. What are Rangoon’s profit margin and debt ratio? (Round answer to 2 decimal places, e.g. 12.55 or 12.55%.) Rangoon’s profit margin is % and its debt ratio is .
1.What is the relationship between the LSD and a Z score? (R programming Language) Write a...
1.What is the relationship between the LSD and a Z score? (R programming Language) Write a fragment of code comparing how both would be computed. Use the Z score for the standard error of a mean, $z_i = (x_i - \mu)/(\sigma / \sqrt(n))$ 2. How would you modify the calculations of LSD to produce Tukey's Honest Signficant Difference?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT