Question

	A company	Z company
Average of ROA	12%	10%
Standard deviation of ROA	5.89%	5.57%
Standard deviation of ROE	8.45%	7.13%

Answer the questions:

1) which company has higher ROE and what is the reason of it?

Answer 1

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Answer:

In this case, it can be seen that there is an average of Return of asset which is higher for company A(12%) than company Z(10%). So it can be said that ROA will be leading to efficiently use of the Assets of the company A in order to maximize the profit of the company and return on equity are only calculated after payment of tax and interest as well as also additional payments, so if interest payments and expenditures are managed properly and efficiently, it would mean that the return on equity will also be higher for company A than company Z, and if the the standard deviation is also higher, it would mean that these return on equity are subject to fluctuations from their mean