Although Apple Computers has a profit margin significantly greater than that of a long-time industry giant such as IBM, IBM continues to have a higher return on equity than Apple. The primary reason for this unusual condition is that IBM has a much greater equity than Apple.

Question

Quizplus · Accepted Answer

The primary reason for this condition could be due to IBM employing a higher level of financial leverage (debt) compared to Apple, not necessarily having a much greater equity. A higher return on equity (ROE) can be achieved through greater use of debt, as ROE is calculated by dividing net income by shareholder equity; thus, less equity with the same income increases ROE.

Although Apple Computers Has a Profit Margin Significantly Greater Than