2. Financial Statement Analysis (15 points, 10 minutes) (a) Assume two companies, First Company and Second Company, both with a ROA of 7%. Is it possible for First Company to have a higher Profit Margin than Second Company? If so, how? (Do not write a full essay, short written response, fewer than 70 words.) (b) Assume two companies, Third Company and Fourth Company, both with a ROCE of 10%. It is possible that Third Company might be riskier than Fourth Company? How would this greater risk be reflected in the components of the ROCE ratio? (Do not write a full essay, short written response, fewer than 70 words.) (c) Consider a company that has negative owners” equity. That is, the company has repurchased common stock and repurchased so much that Treasury Stock exceeds Common at Par, Additional Paid-In-Capital and Retained Earnings combined. What does this mean for the interpretation of ROCE?
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