Question

Referring to these data, which of the following conclusions will be true about the companies’ ROEs?

a.The main driver of company A’s inferior ROE, as compared to that of company C’s ROE, is its higher total assets turnover ratio.
b.The main driver of company C’s superior ROE, as compared to that of company A’s and company B’s ROEs, is its greater use of debt financing.
c.The main driver of company C’s superior ROE, as compared to that of company

Answer 1

a. The main driver of company A’s inferior ROE is its higher total assets turnover ratio. The main driver of company C’s superior ROE is its greater use of debt financing.

Step-by-step explanation:

a. The main driver of company A’s inferior ROE, as compared to that of company C’s ROE, is its higher total assets turnover ratio. Company A has a higher ratio, which means that it is generating less profit from its assets as compared to company C. In other words, company A is not efficiently using its assets to generate profits, resulting in a lower ROE.

On the other hand, the main driver of company C’s superior ROE, as compared to that of company A’s and company B’s ROEs, is its greater use of debt financing. Company C is leveraging its capital structure by using debt to finance its operations. By doing so, it is able to generate higher profits and achieve a higher ROE.