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7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: High ROE and high risk High ROE and low risk Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: Analyze the firm's financial ratios over time Compare the firm's financial ratios with other firms in the industry for a particular year You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with less competition is considered to be risky than companies with multiple competitors. The American Association of Individual Investors (AAII) has identified several qualitative factors that should also be considered when evaluating a company's likely future financial performance. Consider the scenario and indicate how you would expect the described event or situation to affect the described business organization

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