Business Studies Questions & Answers

A.                Describe so me of the advantages and disadvantages of ROE as a me asure of corporate profitability.   What is a typical level of ROE, and how does one know if the ROE reported by a given company reflects an adequate return on invest me nt? B.                Define the profit margin, total asset turnover, and financial leverage components of ROE.   Discuss the advantages and disadvantages of each of these potential sources of   high ROE. C.               Based upon the findings reported in Table 11.3, discuss the relation between P/E ratios and profit margins, total asset turnover, and financial leverage.  In general, which component of ROE is the most useful indicator of the firm’s ability to sustain high profit rates in the futur...

A.                Based on the findings reported in Table 10.2, discuss the relation between firm size and profitability, and the link, if any, between firm size and profit rates.   In general, does a large firm size increase profitability? B.                Using a spreadsheet, sort the DJIA according to profit rates and firm size.   Use firm-specific information found on company websites or invest me nt portals, like Yahoo! Finance or MSN Money, to explain the superior profitability of these corporate giants. C.                What other important factors might be included in a more detailed study of the determinants of corporate profitability? CASE STUDY SOLUTION A.             ...

A.     Set up a table or spreadsheet for NPI's order quantity (Q), inventory-related total cost (TC), the purchase price (P), use requirement (X), order cost (Θ), and carrying cost (C).   Establish a range for Q from 0 to 2,000 in increments of 100 (i.e., 0, 100, 200, ..., 2,000). The table or spreadsheet for NPI's order quantity (Q), inventory-related total cost (TC), purchase price (P), use requirement (X), order cost (Θ), and carrying cost (C) appears as follows: Quantity (Q) Total Cost (TC) Price (P) Use Requirement (X) Order Cost θ Carrying Cost (C) 0 4 5,000 $50 $0.50 100 $22,525 4 5,000 50 0.50 200 21,300 4 5,000 50 0.50 300 20,908 4 5,000 50 0.50 400 20,725 4 ...

  A.       One of the most important skills to learn in managerial economics is the ability to identify a good business.  Discuss at least four characteristics of a good business. Interesting perspective on the characteristics of wonderful businesses has been given by legendary Wall Street investors T. Rowe Price and Warren E. Buffett.  The late T. Rowe Price was the founder of Baltimore-based T. Rowe Price and Associates, Inc., one of the largest no-load mutual fund organizations in the United States, and the father of the "growth stock" theory of investing.  According to Price, attractive growth stocks have low labor costs, superior research to develop products and new markets, a high rate of return on stockholder's equity (ROE), elevated profit margins, rapid earnings per share (EPS) growth, lack cutthroat competition and are comparatively immune from regulation.  Omaha 's Warren E. Buffett, the billionaire head of Berkshire ...