A company called Premium Exchange Ltd has the financial information listed in the table below. The industry
Question:
A company called Premium Exchange Ltd has the financial information listed in the table below. The industry that this company operates in has an average ROE of 11.6% based on net profit margin of 4.5%, a return on assets of 5.7%, and financial leverage of 2.04.
Premium Exchange LTD ($) | |
Total Assets | 11,340,000 |
Total Equity | 9,450,000 |
Revenue | 15,400,000 |
Net Income | 1,350,000 |
A) Calculate ROE and decompose it into its components using the traditional method. You can use the template below for the ROE calculation
Decomposition of ROE | Premium Exchange LTD |
Net profit margin (ROS) | |
x Asset turnover | |
= Return on Assets (ROA) | |
x Financial leverage | |
= Return on equity (ROE) |
B) Briefly analyse the results of the ROE decomposition using the traditional method.[Maximum of 100 words]
C) Briefly explain whether the alternative decomposition of ROE would give any additional (consider only two key) insights into the analysis of Premium Exchange Ltd’s performance. [Maximum of 100 words]
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta