In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packards return was only 6.4 percent. Use the decomposed ROI framework to provide

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In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packard’s return was only 6.4 percent. Use the decomposed ROI framework to provide possible reasons for this difference based on the data below:

                                                            IBM                HP

NOPAT/Sales                                     9.0%                2.7%

Sales/Net Assets                                 2.16                 2.73

Effective After-Tax Interest Rate      2.4%                1.1%

Net Financial Leverage                       0.42                 -0.16