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Is the executive correct in predicting that ROE will fall?

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Which company would you expect to have the higher debt to equity ratio, a financial institution or a high technology company? Why?

Which company would you expect to have a higher profit margin, an appliance manufacturer or a grocer? Why?

Which company would you expect to have a higher price to earnings ratio, General Motors or Google? Why?

Which company would you expect to have a higher current ratio, a jewelry store or an online bookstore? Wny?

Your firm is considering the acquisition of a very promising technology company. One executive argues against the move, pointing out that because the technology company is presently losing money, the acquisition will cause your firm's return on equity to fall.

Is the executive correct in predicting that ROE will fall?
How important should changes in ROE be in this decision?

Response is 617 words of original commentary.

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Solution Summary

Discussion is about capital structure for different businesses. Response is 617 words of original commentary.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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