Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Last year Publix Supermarkets generated the following results: return on equity ( ROE ) of 2 7 . 0 5 % , which was comprised
Last year Publix Supermarkets generated the following results: return on equity ROE of which was comprised of a net profit margin of total asset turnover of and a financial leverage multiplier of During the same time period, Kroger generated the following results: ROE of which was comprised of a net profit margin of total asset turnover of and a financial leverage multiplier of Which of the following is the most likely conclusion an analyst would make when reviewing these results?
As is evidenced by the differences found between the two companies financial leverage multipliers, companies with higher multipliers will always exhibit higher ROEs.
Publix uses a higher percentage of debt in financing its operations, so even though it was much less effective in generating revenues from its investment in assets as noted by the total asset turnover, it is still able to generate a similar return for its shareholders as did Kroger.
There is not enough information to make any sort of a comparison between the two companies.
Despite having a much lower profit margin, due to its higher total asset turnover and greater use of leverage, Kroger has a marginally higher ROE.
As indicated by its higher ROE, Kroger has better control over its expenses.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started