Question: In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packards return was only 6.4 percent. Use the decomposed ROI framework to provide

In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packard’s return was only 6.4 percent. Use the decomposed ROI framework to provide possible reasons for this difference based on the data below:

IBM HP

NOPAT/Sales 9.0% 2.7%

Sales/Net Assets 2.16 2.73

Effective After-Tax Interest Rate 2.4% 1.1%

Net Financial Leverage 0.42 -0.16

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