Question: Why is ROE generally much higher than ROA for banks relative to other industries?

Why is ROE generally much higher than ROA for banks relative to other industries?

Step by Step Solution

★★★★★

3.42 Rating (165 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

Banks have a very small equity base relative to firms ... View full answer

blur-text-image
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)

Word file Icon

141-B-C-F-F-S (320).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Q:

Why is the interest rate on a credit card generally much higher than government bond interest rates A) Credit cards are debt while government bonds are assets B) All five of the interest rate...

Q:

Why is service cycle efficiency generally a higher percentage than manufacturing cycle efficiency?

Q:

Why are rates on credit card loans generally higher than rates on car loans?

Q:

(1) Financial Ratios Referencing this week?s readings and lecture, what are the limitations of financial ratios? Classify your answer into at least the following categories: liquidity ratios,...

Q:

To address the questions using financial ratios, let's calculate and analyze the relevant ratios for Cusaba Incorporated based on the provided balance sheet and income statement. ### 1 . Would you...

Q:

Identify TEN incorrect or inappropriate treatments/calculations in the following case and provide brief explanation as to why they are incorrect or inappropriate. A student is asked to conduct a...

Q:

Apple Microsoft Profit Margin 25% 33% Operating Margin 30% 40% ROA 20% 15% ROE >100% 45% Current Ratio 0.9 2.5 Debt/Equity High (due to share buybacks) 0.5 P/E Ratio 28 34 Analysis: It's clear that...

Q:

All-Time Favourite Financial Ratios There are hundreds of financial ratios, many of which provide basically the same information. Therefore you should limit the calculation of ratios to a reasonable...

Q:

COMMON STOCK ANALYSIS Please read through the Investment Thumbnails on 13 of the stocks that I analyzed and included in my small cap value mutual fund portfolio during the 2006-7 time frame. These...

Q:

List four basic financial statement analysis procedures, describe how you would calculate each procedure and discuss why you would use each procedure. In your initial response, please do not use...

Q:

Question 2. Company B operates a chain of stores that sell different styles of inexpensive products with identical unit costs and selling prices. The selling price is 27,5 $ per unit. Each store has...

Q:

Ray Corporation had 100,000 ordinary shares and 10000 shares of 8% $100 par convertible preference shares outstanding during the year Net income for the year was $400000 and dividends were paid to...

Q:

The present value of $ 6 , 0 0 0 you will receive 3 years from today is $ 5 , 3 3 3 . 9 8 , assuming a 4 % interest ( discount ) rate. What would the difference in the present value be if the...

Q:

17.57 Capability indexes for the waterproofing process. Table 17.1 (page 17-10) gives 20 process control samples of the water resistance of a particular outdoor jacket. In Example 17.13, we estimated...

Q:

Calculate the price of a five-year bond that has a coupon of 6.5 percent paid annually. The current market rate is 5.75 percent?

Q:

Bigbie Corp. issued a five-year bond a year ago with a coupon of 8 percent. The bond pays interest semiannually. If the yield to maturity on this bond is 9 percent, what is the price of the bond?

Q:

Rockwell Industries has a three-year bond outstanding that pays a 7.25 percent coupon and is currently priced at $913.88. What is the yield to maturity of this bond? Assume annual coupon payments?

Q:

(In Thousands) (USD) Total Revenue EBITDA Operating Income Net Income Revenue per Share EPS from Continuing Operations EPS - Net Income - Diluted Share Outstanding Weighted Average Shares Outstanding...

Q:

The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation:

Q:

QUESTION 5 The Bike Shoppe has total assets of $536,712 and an equity multiplier of 1.36. What is the debt-equity ratio? For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). B I US Paragraph...