8. More on ratio analysis Analysts and investors often use return on equity indu

Question

8. More on ratio analysis Analysts and investors often use return on equity industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. AaAa (ROE) to compare profitability of a company with other firms in the se in ROE would An increase in ROE would away imply an increase in shareholder wealth. Based on your understand sometimes choose if his or her bonuseeon the ROE of the next project? always sometimes and limitations of ROE, which of the following projects will a manager tlikely Project Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a current year, you would: comparative analysis for the O Compare the firm's financial ratios for the current year with its ratios in previous years O Compare the firm's financial ratios with other firms in the industry for the current year You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with one key product is considered to be risky than companies with a wide range of products Search the web and Windows

Explanation / Answer

1. Always

2. Project Y 40% ROE

3. Compare with other firms in the industry.

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