Q1. Which company offers products to members in a range of merchandise categories that have been purchased directly from manufacturers? (YHOO / ___________ / CAT) The business strategy of this company is to purchase merchandise at (___________ / high) prices and then sell the merchandise to members at (low / high) prices to generate (low / ___________) volume. The (___________ / high) pricing strategy is reflected in (___________ / Asset Turnover / Financial Leverage) of ___________, whereas the (low / ___________) volume strategy is reflected in (ROS / ___________ / Financial Leverage) of ___________.
Q2. (ROS / ___________ / ROE) is the most comprehensive profitability ratio, and of the three companies, (___________ / COST / CAT) has the greatest profitability as measured by this ratio.
Q3. Compute Financial Leverage and ROE for Costco and Caterpillar and record in the chart above. (YHOO / COST / ___________) reports the greatest ROE and (YHOO / COST / ___________) is assuming the greatest amount of financial risk.
Q4. Costco has a debt ratio of approximately (15% / ___________ / 84%), resulting in a Financial Leverage ratio of around (1 / 2 / 6); therefore, ROE is (1 / ____ / 6) times greater than ROA.
Caterpillar has a debt ratio of approximately (15% / 55% / ___________), resulting in a Financial Leverage ratio of around (1 / 2 / _______); therefore, ROE is (1 / 2 / _____) times greater than ROA.
Q5. Using only the financial information above, which company would you prefer to invest in? (___________ / ___________ / ___________) Why?