Question
You are examining the profitability of two firms. Selected data from their respective balance sheets and income statements are in the table below. Which of
You are examining the profitability of two firms. Selected data from their respective balance sheets and income statements are in the table below. Which of the following statements about the return on equity (ROE) is true? Select the best one. (Hint use the DuPont Identity)
I.
The ROE for Firm D is equal to the ROE for Firm E.
II.
The ROE for Firm D is higher than the ROE for Firm E because Firm D has a higher net profit margin than Firm E.
III.
The ROE for Firm D is lower than the ROE for Firm E because Firm D has a lower net profit margin than Firm E.
IV.
The ROE for Firm D is lower than the ROE for Firm E because Firm D has a lower asset turnover ratio than Firm E.
V.
The ROE for Firm D is higher than the ROE for Firm E because Firm D has a higher asset turnover ratio than Firm E.
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