What is the likely explanation for the increasing rate of return on common shareholders’ equity?

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Analyzing the rate of return on common shareholders’ equity. Consider the following additional data. Fiscal Year: 2006 2005 2004 Profit Margin for ROCE Ratio 7.9% 7.1% 5.5% Total Assets Turnover Ratio 1.8 1.6 1.6 Capital Structure Leverage Ratio 2.3 2.5 2.7 ROCEa 31.8% 24.4% 23.0% aAmounts do not exactly equal the product of the three preceding ratios due to rounding. a. What is the likely explanation for the increasing rate of return on common shareholders’ equity? b. Is financial leverage working to the advantage of the common shareholders in each year?

 

Solution ID:565857 | This paper was updated on 26-Nov-2015

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