A Firm Reports an ROE of 14 Percent, a Leverage

question 9

Essay

A firm reports an ROE of 14 percent, a leverage ratio of 1.5, an asset turnover of 1.667, and a profit margin of 9 percent.Calculate the firm's ROA and then comment on the ROA in relation to ROE.What is happening?

---

Definitions:

Responsible Person Doctrine

A legal principle that holds an individual in a business or enterprise accountable for ensuring compliance with tax laws and regulations.

Acting in Good Faith

A principle of honesty and fairness in dealings, implying the absence of fraud, deceit, or intent to deceive in a transaction or interaction.

Leveraged Buyout (LBO)

A takeover-resistance strategy in which a group within the target corporation buys all the corporate stock held by the public, thereby turning the company into a privately held corporation.

Outstanding Corporate Stock

Shares of a corporation that have been issued and are currently owned by shareholders.