Companies Heidee and Leaudy are virtually identical in that they are both profit

Question

Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company Heidee has the higher debt ratio. Which of the following statements is CORRECT? Company Heidee has a lower operating income (EBIT) than Company LD. Company Heidee has a lower total assets turnover than Company Leaudy. Company Heidee has a lower equity multiplier than Company Leaudy. Company Heidee has a higher fixed assets turnover than Company Leaudy. Company Heidee has a higher ROE than Company Leaudy.

Explanation / Answer

ROE= Gross Profit* asset turnover*(1+debt/equity)

As heidee has higher debt ratio, and rest all are same its ROE will ne gretaher than Leaudy

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