CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

For growth companies, which of the following components of ROE is most likely to decline first?
A. Financial leverage
B. Total assets turnover
C. Profit margin
Explanation: For growth companies, profit margin is one of the first ratios to decline, due to increased competition and forced price cuttings.

User Contributed Comments 2

User Comment
renataa how is competition related to the growth companies.... industry at growth stage - Yes, but what its got to do with the growth companies...
Unless their sales grow at a faster rate than their profits, thus reducing profit margin...
edrei7 A company in its growth life cycle would see increased competition in the coming years leading to the shakeout life cycle. Those extra profits would be the first to go.
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