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 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 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 o the company's performance. If you wanted to conduct a trend analysis, you would: Compare the firm's financial ratios with other firms in the industry for a particular year Analyze the firm's financial ratios over time