Companies ABC and XYZ are similar in asset size ($3 billion), asset volatility (30%),ROE (20%) and dividend-payout ratio (30%), but differ in the following way:
|
ABC
|
XYZ
|
|
Profit Margin
|
10%
|
12%
|
|
Asset Turnover
|
160%
|
120%
|
(a) Which company riskier? Brie?y explain why.
(b) What is the growth rate of each company?
(c) What does your answer in part above say about this relationship between the growth rate and risk?