A decomposition of ROE for Integra SA is as follows:
|
2005 |
2004 |
|
|
ROE |
18.90% |
18.90% |
|
Tax burden |
0.70 |
0.75 |
|
Interest burden |
0.90 |
0.90 |
|
EBIT margin |
10.00% |
10.00% |
|
Asset number |
1.50 |
1.40 |
|
Leverage |
2.00 |
2.00 |
Which of the following choices best describes reasonable conclusions an analyst might make based on this ROE decomposition?
a. Profitability and the liquidity position both improved in 2005.
b. The higher average tax rate in 2005 offset the improvement in profitability, leaving ROE unchanged.
c. The higher average tax rate in 2005 offset the improvement in efficiency, leaving ROE unchanged.