Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry, fOE 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 simitations of ROE, a rational investor is likely to prefer an investment option that has: High ROE and high risk High ROE and low risk 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 comparative analysis for the current year, you would: Compare the firm's financial ratios with other firms in the industry for the current year Compare the firm's financial ratios for the current year with its ratios in previous years You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AMII). According to your understanding, a company wath one key customer is considered to be risky than companies with several customers. The American Assoclation 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. Western Amalgamated Corp. The Purchasing Policy Guldelines of the Western Amalgamated Corp. indicate that the company is committed to procuring its goods, products, and services from a diversified pool of vendors, contractors, and service providers. Despite these guidelines, Western's purchasing manager prefers to maintain a small cadre of suppliers that he knows and trusts. die company's performance. If you wanted to conduct a comparative analysis for the current year, you would: Compare the firm's financial ratios with other firms in the industry for the current year Compare the firm's financial ratios for the current year with its ratios in previous years You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AMII). According to your understanding, a company with one key customer is considered to be risky than companies with several customers. The American Association 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 stuation to affect the described business organization. Western Amalgamated Corp. The Purchasing Policy Guidelines of the Western Amalgamated Corp. indicate that the company is committed to procuring its goods, products, and services from a diversified pool of vendors, contractors, and service providers. Despite these guidelines, Western's purchasing manager prefers to maintain a small cadre of suppliers that he knows and trusts. How would you expect this situation to affect the assessment of Western's financial condition and performance? The purchasing manager's behavior should be expected to decrease Western's riskiness. His belief that the use of trusted suppliers will prevent or eliminate any inventory or supply delays or outages is, no doubt, correct. The purchasing manager's behavior should be expected to increase Western's riskiness by increasing its exposure to potential supply shortages or mistimed deliveries. Although nonquantitative factors may be relevant to a company's financial evaluation in general terms, the details of this specific situation are not relevant to the firm's financial condition or performance
