The Board of Directors Is Dissatisfied with Last Year's ROE

question 38

Multiple Choice

The board of directors is dissatisfied with last year's ROE of 15%.If the operating profit margin and asset turnover ratio remain unchanged at 8% and 1.25,respectively,by how much must the leverage ratio (i.e.,assets/equity) increase to achieve 20% ROE?

• A) 0.50%
• B) 5%
• C) 16.67%
• D) 33.33%

---

Definitions:

Horizontal Analysis

A financial analysis technique comparing historical data, such as revenues or profits, over a series of periods to identify trends or patterns.

Trend Analysis

The practice of collecting information and attempting to spot a pattern, often used in financial markets or to analyze business data.

Net Income

The total profit or loss of a company after all revenues and expenses have been accounted for.

Cost Of Goods Sold

Costs incurred from the direct production of goods that a firm sells, consisting of both material and labor.