Answer the questions below based on the following information. Thetax rate is 35 percent and all dollars are in millions.
| Locktite Inc. | Stork Systems |
Earnings before interest and taxes | $380 | $ 394 |
Debt (at 10% interest) | $240 | $1,240 |
Equity | $760 | $ 310 |
a. Calculate each company’s ROE, ROA, and ROIC.
b. Why is Stork’s ROE so much higher than Locktite’s? Does thismean Stork is a better company? Why or why not?
c. Why is Locktite’s ROA higher than Stork’s? What does this tellyou about the two companies?
d. How do the two companies’ ROICs compare? What does this suggest about the two companies?
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