A decomposition of ROE for Integra SA is as follows: FY12 FY11 ROE 18.90% 18.90%

Question

A decomposition of ROE for Integra SA is as follows:




























FY12 FY11






ROE
18.90%
18.90%







TAX BURDEN 0.70
0.75







Interest burden 0.90
0.90







EBIT margin 10.00%
10.00%







Asset turnover 1.50
1.40







Leverage 2.00 2.00






Which of   the following choices best describes reasonable conclusions an analyst might   make based on this ROE decomposition? A.   Profitability and the liquidity position both improved in FY12





B. The   higher average tax rate in FY12 offset the improvement in profitability,   leaving ROE unchanged


C. The   higher average tax rate in FY12 offset the improvement in effeciency, leaving   ROE unchanged.




























A decomposition of ROE for Integra SA is as follows:




























FY12 FY11






ROE
18.90%
18.90%







TAX BURDEN 0.70
0.75







Interest burden 0.90
0.90







EBIT margin 10.00%
10.00%







Asset turnover 1.50
1.40







Leverage 2.00 2.00






Which of   the following choices best describes reasonable conclusions an analyst might   make based on this ROE decomposition? A.   Profitability and the liquidity position both improved in FY12





B. The   higher average tax rate in FY12 offset the improvement in profitability,   leaving ROE unchanged


C. The   higher average tax rate in FY12 offset the improvement in effeciency, leaving   ROE unchanged.

Explanation / Answer

B. The higher average tax rate in FY12 offset the improvement in profitability, leaving ROE unchanged

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