Attempts: Keep the Highest: /4 11. 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 Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high 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 Compare the firm's financial ratios with other firms in the industry for a particular year Analyze the firm's financial ratios over time Type here to search o e Mind tap conga 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 each scenario and indicate how you would expect the described event or situation to affect the described business organization. Southern Supply Inc. Southern Supply Inc. The Purchasing Policy Guidelines of the Southern Supply Inc. 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, Southern'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 Southern's financial condition and performance? The purchasing manager's behavior should be expected to increase Souther's shortages or mistime deliveries. kiness by increasing its exposure to potential supply 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 of performance The purchasing manager's behavior should be expected to decrease Southern'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 Type here to search O e - Mud tap - Congog- Attempts: Keep the Highest: /4 11. 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 Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high 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 Compare the firm's financial ratios with other firms in the industry for a particular year Analyze the firm's financial ratios over time Type here to search o e Mind tap conga 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 each scenario and indicate how you would expect the described event or situation to affect the described business organization. Southern Supply Inc. Southern Supply Inc. The Purchasing Policy Guidelines of the Southern Supply Inc. 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, Southern'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 Southern's financial condition and performance? The purchasing manager's behavior should be expected to increase Souther's shortages or mistime deliveries. kiness by increasing its exposure to potential supply 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 of performance The purchasing manager's behavior should be expected to decrease Southern'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 Type here to search O e - Mud tap - Congog