Explain with an example of how a healthy company might not have a spectacular ROE because there is so much equity in the company?
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Explain with an example of how a healthy company might not have a spectacular ROE because there is so much equity in the company?
Return in Equity or R.O.E.
Return on equity refers to as the percentage of return, a company is getting, by earning income corresponding to shareholder’s equity invested in the company.
It is calculated as follows:
Return on Equity: Net Income / Average Shareholder’s Equity
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- Give an example of a leveraged company that might have a spectacular ROE because the owners have put so few of their own resources into the company?If you are in financial hardship, explain what it means. If we suppose that financial hardship occurs, explain how and why financial distress would make a company's stock more hazardous.Explain in full detail why the following statement is false: "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.
- You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency?Which of the following statements is most often the case? A. Socially responsible businesses tend to post higher profits than those not focused on social responsibility. B. Companies that are not socially responsible will have better profits, but have a moral obligation to society. C. Socially responsible investing gives poorer returns than non-socially responsible Investing. D. Investors are more short termed focus and so socially responsible investing should not be a factor in their investment portfolio.What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?
- How important is profit? How can a company survive when it isn't making a profit? How can a company fail when it is making a large profit?what if in the future, it will earn a negative RCE. Is this possible for a company? Why?Can you identify a possible explanation for the company’s declining profits? If so, what is it?
- What are some advantages of invetsting in industy competitors? ie., You own stock in Walgreens and you also choose to invest in a competitor such as CVS How would investing in an industry's competitor help ensure a satisfactory return even if the original company's value depreciates?Explain how managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.Business risk is A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE) also known as inflation risk