A decomposition of ROE for Company A and Company B is as follows:

Company A Company B FY15 FY14 FY15 FY14 ROE 26.46% 18.90% 26.33% 18.90%

Tax burden 0.7 0.75 0.75 0.75 Interest burden 0.9 0.9 0.9 0.9 EBIT margin 7.00% 10.00% 13.00% 10.00%

Asset turnover 1.5 1.4 1.5 1.4 Leverage 4 2 2 2 An analyst is most likely to conclude that:

A . Company A’s ROE is higher than Company B’s in FY15, and one explanation consistent with the data is that Company A may have purchased new, more effi cient equipment.

B . Company A’s ROE is higher than Company B’s in FY15, and one explanation consistent with the data is that Company A has made a strategic shift to a product mix with higher profi t margins.

C . Th e diff erence between the two companies’ ROE in FY15 is very small and Company A’s ROE remains similar to Company B’s ROE mainly due to Company A increasing its fi nancial leverage.