Simonz Co Had a ROE of 12% Last Year, and the the ROE

question 87

Essay

Simonz Co. had a ROE of 12% last year, and the ROE increased to 40% this year. At the same time, the profit margin decreased. How is this possible?

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Definitions:

Accrued Revenues

Assets (receivables) created when revenues are earned, but cash will be collected from customers in the future; created at end of period during the adjustment process to reflect the amount of revenue earned by providing goods or services over time to customers who will pay in the future.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the owners' claim on the company assets.

Assets

Resources owned by a company from which future economic benefits are expected to flow to the company.

Deferred Expenses

Assets created when purchased in the past before being used to generate revenues; need to be adjusted at the end of the period to reflect the amount of expense incurred by using the assets over time.