In 2005 IBM had a return on equity of 26.7 percent, whereas Hewlett-Packard's return was only 6.4 percent. Use the decomposed ROI framework to provide possible reasons for this difference based on the data below:
IBM
HP
NOPAT/Sales
9.0%
2.7%
Sales/Net Assets
2.16
2.73
Effective After-Tax Interest Rate
2.4%
1.1%
Net Financial Leverage
0.42
-0.16
2. In a period of rising prices, Explain how would the following ratios be affected by the accounting decision to select LIFO, rather than FIFO, for inventory valuation?
* Gross Margin
* Current Ratio
* Asset Turnover
* Debt-to-equity ratio
* Average tax rate