L'Oral S.A. Ordinary Shares: 3,000,000 8% Debentures: 600,000 Este Lauder Companies Inc. Ordinary Shares: $2,500,000 10% Debentures: $1,000,000 Shiseido Company Ordinary Shares: 2,800,000 12% Debentures:

• L'Oréal S.A.
  • Ordinary Shares: €3,000,000
  • 8% Debentures: €600,000
• Estée Lauder Companies Inc.
  • Ordinary Shares: $2,500,000
  • 10% Debentures: $1,000,000
• Shiseido Company
  • Ordinary Shares: ¥2,800,000
  • 12% Debentures: ¥800,000

The return on capital employed was 17% for each firm in 2013, and in 2014 it was 10%. Corporation tax in both years was assumed to be 43%, and debenture interest is an allowable expense against corporation tax.

(a) Calculate the percentage return on the shareholders' capital for each company for 2013 and 2014. Assume that all profits are distributed. (b) Evaluate the effects of high gearing on the financial performance and risk profile of these companies.