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7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. never should be chosen if they have the same risk and cost Based on your understanding of the uses and limitations of ROE, which of the of capital? always Project X, with 35% ROE and a large investment, generating high enot necessarily Project Y, with 40% ROE and a small investment, generating low expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a comparative analysis for the current year, you would: O Compare the firm's financial ratios with other firms in the industry for the current year O Compare the firm's financial ratios for the current year with its ratios in previous years You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with less competition is considered to be risky than companies with multiple competitors. The American Association of Individual Investors (AAII) has identified several qualitativ less that should also be considered when evaluating a company's likely future financial performance. Consider the scenario and indicate how more id expect the described event or situation to affect the described business organization. Eastern Manufacturing Products Inc. The family who founded and operates Eastern Manufacturing Products Inc. is headed by a strong-willed and very astute octogenarian. The company has no succession plan for replacing him in the event of his injury, death, or incapacitation. How would you expect this situation to affect the assessment of Eastern's financial condition and performance? Although nonquantitative factors may be relevant to a company's financial evaluation in general terms, the details of this specific situation are not relevant to the firm's financial condition or performance. O Because the company is family owned, succession planning should not be an issue, and the family can pull together to run the organization when the leader dies. This should ensure that the company's expected future performance is maintained. The absence of a succession plan for Eastern's leader and driving force can place the organization in serious jeopardy. A firm's financial condition and performance are the result of decisions made by the firm's leadership and staff