Company A and Company B have the same degree of leverage, but A has a higher...
Company A and Company B have the same degree of leverage, but A has a higher profit margin than B. What conditions have to be in place for Company B to have a higher return on equity than company A, if possible?
Homework Answers
Return on equity =profit margin / total equity
If the company B has a lower total equity as compared to A , then only company B can have higher return on equity. This is because company A has higher profit margin than company B, so to make it possible for company B to have higher Return on equity, the total equity should be lower than that of company A.
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