The Following Return on Investment Ratios Were Computed for ET

question 148

Essay

The following return on investment ratios were computed for ET Company: $$\begin{array} { | l | r | r | r | r | } \hline & \underline { \mathbf { 2 0 X } } & \underline { \mathbf { 2 0 X } } & \underline { \mathbf { 2 0 X 3 } } & \underline { \mathbf { 2 0 X 4 } } \\\hline \text { Return on assets } & 12 \% & 15 \% & 15 \% & 18 \% \\\hline \text { Return on equity } & 15 \% & 15 \% & 11 \% & 20 \% \\\hline\end{array}$$ (a) Financial leverage percent for each year was: $$\begin{array} { | l | l | l | l | } \hline 20X1 :\underline{\quad\quad}& 20X2 : \underline{\quad\quad}\_ & 20 X3 : \underline{\quad\quad} & 20X 4 : \underline{\quad\quad}\\\hline\end{array}$$ (b) Explain briefly the shareholders' advantage or disadvantage for each year: 20X1: 20X2: 20X3: 20X4:

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Definitions:

Factory Overhead

All indirect costs associated with the manufacturing process, excluding direct materials and direct labor costs.

Depreciation

The methodical distribution of the expense of a physical asset throughout its lifespan.

Payback Period

A financial metric that calculates the time required for an investment to generate cash flows sufficient to recover the initial investment cost.

Direct Materials

Raw materials that can be directly attributed to the production of specific goods or services, integral to the finished product.