Question
Mike Strauss is a financial analyst in the industrial-trend research team in the research department of CFB. Strauss is assigned to examine the sensitivity of
Mike Strauss is a financial analyst in the industrial-trend research team in the research department of CFB. Strauss is assigned to examine the sensitivity of each industrys operational performance on the changes in monetary policy. He collects the median asset turnover, return on equities, net profit margin, and gross profit margin of four industries from the most recent annual accounting reports and tabulates the data in the table shown below.
Today, one of Strauss's colleagues, Michelle Granato, reports his prediction on the future Federal Funds Rate in the U.S. in the coming months. Granato suggests an increasing Federal Funds Rate in the coming months. According to Granato's report and the data he collects, Strauss suggests that the Earnings Per Share (EPS) of healthcare and high-tech companies would be less affected by the increasing interest rate in the next year than consumer goods companies and manufacturing companies.
Median Ratios by Industry | ||||
| Consumer Goods | Healthcare | Hi Tech | Manufacturing |
Median Asset Turnover | 1.18 | 0.27 | 0.32 | 0.71 |
Median Return on equities | 0.09 | 0.36 | 0.23 | 0.08 |
Median Gross Profit Margin | 0.35 | 0.41 | 0.62 | 0.35 |
Median Net Profit Margin | 0.02 | 1.34 | 0.97 | 0.03 |
Q: Is Strauss's suggestion on the healthcare and high-tech companies future EPS justifiable? Why?
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