7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. 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 the company's performance. If you wanted to conduct a trend analysis, you would: Analyze the firm's financial ratios over time 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 less competition is considered to be competitors. 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. Northern Services Inc. As a result of targeting by unethical product liability attorneys, Northern, a small manufacturer of a revolutionary crawfish steamer, currently has a multimillion-dollar class action lawsuit pending. have joined the lawsuit in an effort to collect "free" funds. would you expect this situation to affect the assessment of Northern's financial condition and performance? Being small, Northern may lack the financial resources and media-management expertise to successfully defend itself in the lawsuit the media. This could jeopardize Northern's current and future sales and profits. Although nonquantitative factors may be relevant to a company's financial evaluation in general terms, the details of this specific are not relevant to the firm's financial condition or performance. Lawsuits guarantee free advertising and therefore should be guaranteed to increase the firm's current and future sales and profits