For the year ended 30 June 2020, Alpha Supermarkets had a return on equity (ROE) of 6.50 percent while Beta Supermarkets return was 6.55 percent. The following data are available to the analyst from their financial statements:

REQUIRED

Using the decomposed ROE framework, you are required to answer the following:

(a) Which firm had a higher operating return on assets (calculate operating ROA)? From the information provided in the above table, identify and discuss three factors that contributed to the difference in operating ROA between these two firms? (8 marks)

(b) Which firm had been able to generate higher return from debt financing than the cost of debt (calculate spread and financial leverage gain)? Do you think that the firms debt policy played any role here? If so, how? (4 marks)