The Following Information for 2014 Is Provided for Two Public

question 126

Essay

The following information for 2014 is provided for two public companies in the same industry:
Instructions
Answer the following questions about the two companies. Use the information provided to calculate the ratios needed to support your answers.
a. Based on the above information, which company is more profitable?
b. About which company are investors more optimistic?
c. In which company would investors prefer to buy shares for growth potential? In which company would they prefer to buy shares if their goal is dividend income?

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Definitions:

Required Reserve Ratio

The fraction of deposits that banks are required to hold in reserve, either in their vaults or at the central bank, to ensure that they can meet withdrawal demands.

Simple Money Multiplier

A formula that estimates the maximum amount of money that banking can generate with each dollar of reserves.

Required Reserve Ratio

The fraction of deposits that banks are required by law to keep on hand or with the central bank, rather than lend out.

Money-Creation Process

The mechanisms through which new money is produced and introduced into the economy, primarily conducted by central banks and commercial banks.