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?

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Definitions:

Dishonor

The refusal or inability of a party to accept or pay on a financial obligation when due.

Right To Recourse

The right to recourse refers to the legal ability to seek compensation or redress from a party that has failed to fulfill their contractual obligations.

Reimbursement

The act of compensating someone for an expense or loss incurred, often seen in business, insurance, and employment contexts.

Negotiable Instrument

A transferable, signed document that promises to pay the bearer or named party a certain sum of money either on demand or at a specified future date.