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Which contributed the most to the change in roe

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Question: The following summary financial statistics were obtained from the 2015 Otago Bay Marine Motors (OBMM) annual report.

                                          2015
                                    ($ in millions)

Sales Revenue                    $179.3

Total assets                       $136.3

Net earnings                       $ 20.2

Shareholder's equity             $109.6

a. Use the profit margin and asset turnover to compute the 2015 ROA for OBMM. Now introduce the equity multiplier to find ROE.

b. Use the summary financial information from the 2016 OBMM financial statements (see Problem 7.17) to compute the 2016 ROA and ROE. Use the same procedures to calculate these measures as you did in part a.

c. On the basis of your calculations, describe how each of the three components (profit margin, asset turnover, and leverage) contributed to the change in OBMM's ROA and ROE between 2015 and 2016. Which component(s) contributed the most to the change in ROA? Which contributed the most to the change in ROE?

d. Generally speaking, do you think that these changes are fundamentally healthy for the company?

Reference no: EM131626219

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