Pixie$$s Boutique and Jim$$s Wardrobe are two companies in the apparel industry. They have the same return on equity $($ROE$)$ ratio: $45\%.$ Also, the ratios for each of these companies for the current financial year are as stated in the table provided below:

RATIO PIXIE$$S BOUTIQUE JIM$$S WARDROBE

Profit margin $30\%15\%$

Total asset turnover $0\mathrm{.}506$

Financial leverage $30\mathrm{.}5$

Explain how Pixie$$s Boutique has the same ROE as Jim$$s Wardrobe despite having a higher profit margin.

Answer rating: 100% (QA)

Despite Pixies Boutique having a higher profit margin compared to Jims Wardrobe both companies can still have the same return on equity ROE due to dif... View the full answer