1. CP11-5 Computing and Interpreting Return on Equity (ROE) and Price/Earnings (P/E) Ratios [LO5]

Aaron%u2019s, Inc., and Rent-A-Center, Inc., are two publicly traded rental companies. They reported the following in their 2008 financial statements (in millions of dollars, except per share amounts and stock prices):

	Aaron%u2019s, Inc.				Rent-A-Center, Inc.
	2008		2007		2008		2007
Net income	$	90.2	$	80.3	$	139.6	$	76.3
Total stockholders%u2019 equity		761.5		673.4		1,079.2		947.1
Earnings per share		1.69		1.48		2.10		1.11
Stock price when annual results reported		26.67		21.54		19.37		18.35

Requirement 1:

(a)	Compute the 2008 ROE for each company. TIP: Remember that the bottom of the ROE ratio uses the average stockholders%u2019 equity. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)

	ROE
Aaron%u2019s		%
Rent-A-Center		%

(b)	Which company appears to generate greater returns on stockholders%u2019 equity in 2008?

(Click to select) Both companies Rent-A-Center Aaron