* Gross Margin
* Current Ratio
* Asset Turnover
* Debt-to-equity ratio
* Average tax rate
The decomposed ROE is made of three components:
Profit/Sales * Sales/Assets * Assets/ Equity
The lower return on equity for Ford can be explained by making assumptions about these three components. In 1995, it may be possible that although profit on sales was approximately equal for both the companies, the ultimate ROE was affected by Sales/ Assets and Assets/ ...
In 1995 Chrysler has a return on equity of 20 percent, whereas Ford's return is only 8 percent. Use the decomposed ROE framework to provide possible reasons for this difference.