Question: In 2005 IBM had a return on equity of26.7 percent, whereas Hewlett-Packards return was only 6.4 percent. Use the decomposed ROI framework to provide possible

In 2005 IBM had a return on equity of26.7 percent, whereas Hewlett-Packardâ€™s return was only 6.4 percent. Use the decomposed ROI framework to provide possible reasons for this difference based on the databelow:

IBM HP 9.0% 2.16 NOPAT/Sales Sales Net Assets Effective After-Tax Interest Rate Net Financial Leverage 2.7% 2.73 1.190 0.16 12.4% 0.42

Step by Step Solution

★★★★★

3.42 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

ROE can be decomposed as follows Using this decomposition ROE depends on a companys return on assets which can in turn be decomposed into return on sales and operating asset turnover and leverage gain ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

410-B-A-F-A (1859).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Emilio Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $300,000 per year Cost of equipment $1,100,000 Salvage value at the...

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 possible reasons for this difference based on the...

In 2005 IBM had an ROE of 26.7%, but Hewlett-Packards ROE was only 6.4%. Use the DuPont framework to identify possible reasons for this difference based on the data below: IBM HP NOPAT/Sales 9.0%...

A firm has a return on equity of 15%. The debt-equity ratio is 50%. The total asset turnover is 1.25 and the profit margin is 8%. The total equity is $3,200. What is the amount of the net income? a)...

Please show the workings of calculations Item Operating Revenue Other Revenue Total Revenue Excluding Interest Operating Expenses EBITDA Depreciation Amortisation Depreciation and Amortisation EBIT...

Q3: In 2011, Stockland has a return on equity of 7.2%, whereas Mirvac's return is only 3.6%. Use the decomposed ROE framework to provide possible reasons for this difference based on the data below...

3 . In 2 0 0 5 , IBM had a return on equity of 2 6 . 7 percent, whereas Hewlett - Packard s return was only 6 . 4 percent. Use the decomposed ROE framework to provide possible reasons for this...

4. 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 ROE framework to provide possi- ble reasons for this difference based...

James Broker, an analyst with an established brokerage firm, comments: "The criti- cal number I look at for any company is operating cash flow. If cash flows are less than earnings, I consider a...

Please fully answer the following questions about the case in your report: Summarize and discuss the core issue in the case. Do not repeat the entire case details but only pertinent information at...

It is becoming widely expected that interest rates will rise in the coming year. In recent weeks the 10 year US bond has risen from about 1.50% to 1.80%. Using the appendix for chapter 2 on Webster...

Mr. Victor, aged 38, is an Assistant Manager at a financial institution in America. He is married, with three children, aged 10, 6, and 2. The first is a boy, and the remaining two are girls. Mr....

Crane Corporation was organized on January 1, 2021. During its first year, the corporation issued 2,000 shares of $50 par value preferred stock and 105,000 shares of $10 par value common stock. At...

P10.31 For the system of Problem P10.30, use a phase-lag compensator and attempt to achieve a phase margin of P M . . = 50. Determine the actual percent over shoot and peak time for the compensated...

A wet steam at 20bar with a quality of 0.97 (see Problem 7.32) leaks through a defective steam trap and expands to a pressure of 1 atm. The process can be considered to take place in two stages: a...

Humble Management Services opens for business and completes these transactions in September. Sept. 1 Henry Humble, the owner, invests $38,000 cash along with office equipment valued at $15,000 in the...

Myer's Treats makes institutional cakes. Finished cakes must pass through two departments: Mixing and Baking. Vats of cake batter are processed in the Mixing Department and then transferred to the...

Advance Technology Consultants, Inc. (ATC), contracted with RoadTrac, LLC, to provide software and client software systems for the products of global positioning satellite (GPS) technology being...

Suppose the following information was taken from the 2014 financial statements of FedEx Corporation, a major global transportation/delivery company. Instructions Answer each of the following...

What computing language is used to manage a database? A. HTML B. * SQL C. ADSL D. HTTP

A leading oil exploration company decides to acquire an Internet company at a 50 percent premium. The acquirer argues that this move creates value for its own stockholders because it can use its...

a. How would the following ratios differ for a company that used the purchase method to account for an acquisition versus the pooling-of-interests method in the year following the acquisition? ...

Financial analysts typically measure financial leverage as the ratio of debt to equity. However, there is less agreement on how to measure debt, or even equity. How would you treat the following...

Suppose that you are assessing the investment opportunity set for combinations of a riskless asset with a return of 3% and a risky asset. The risky asset has an expected return of 15% and return...

Compute the price of a $1,000 par value, 11 percent (semi-annual payment) coupon bond with 21 years remaining until maturity assuming that the bond's yield to maturity is 18 percent? Round your...

d4.4 please see attached picture for the questions for help with homework (note: these are not test questions) {SELF - .22 The quality control manager of Marityn's Cookies is inspecting a batch of...