1. A company has a return on assets of 14% and a return on common stockholders’ equity of 11%. The president of the company has asked you to explain the reason for this difference. What causes the...

1. A company has a return on assets of 14% and a return on common stockholders’ equity of 11%. The president of the company has asked you to explain the reason for this difference. What causes the difference? How is the concept of financial leverage involved?

2. Some ratios are more useful for management, whereas others are better suited to the needs of outsiders, such as stockholders and bankers. What is an example of a ratio that is primarily suited to management use? What ratio is more suited to use by outsiders?