04: Assignment-Analysis of Financial Statements Back to Assignment Attempts: Ch Keep the Highest: ttention: Due to a bug in Google Chrome, this page may not function correctly. Click here to learn more 7. More on ratio analysis Aa Aa (ROE) to compare profitability of a company with other firms in the Analysts and investors often use return on equity industry. ROE look good. company's ROE numbers is considered a very important measure, and managers strive to make the An increase in ROE would imply an increase in shareholder wealth Based on your understanding of the uses and limitations of ROE, which of the following projects should be chosen if they have the same risk and cost of capital? Project X, with 35% ROE and a large investment, generating high expected cash flows Project Y, with 40% ROE and a small investment, generating low expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: O Analyze the firm's financial ratios over time O Compare the firm's financial ratios with other firms in the industry for a particular year You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with one key product is considered to be risky than companies with a wide range of products. The American Assodiation of Individual Investors (AAII) has identified several qualitative factors that should also be considered when evaluating a company's likely future financial performance. Consider the scenario and indicate how you would expect the described event or situation to affect the described business organization. How would you expect this situation to affect the assessment of Southern's financial condition and O Type here to search