Selected information for a company and its industry’s average return on equity (ROE) is provided:
Which of the following is most likely a contributor to the company’s inferior ROE compared with that of the industry? The company’s lower:
A、 financial leverage.
B、 tax burden ratio.
C 、interest burden ratio.
When forecasting earnings, an analyst’s best approach is to:
A 、establish a precise forecast based on the results of economic and financial analysis.
B、 calculate a range of possibilities based on the results of financial analysis.
C 、utilize the results of financial analysis and professional judgment.
A is correct. Compare the three specified components from the five-way DuPont analysis:
The lower financial leverage ratio relative to the industry is one of the causes of the company’s poor relative performance.
B is incorrect, as per table. C
is incorrect, as per table.
C is correct. Forecasts are not limited to a single point estimate but should involve a range of possibilities. The results of financial analysis are integral to this process, along with judgment of the analysts.
A is incorrect. Forecasts should involve a range of possibilities and should not be based solely on economic and financial analysis.
B is incorrect. While analysts should derive a range of possibilities, they should not rely solely on financial analysis.