1)

Here, can see that the ROE is mainly driven by the Assets turnover, which keep increasing despite the 2001 crisis. On the other hand, the Operating margins is severely hit by the Internet Bubble with a negative ratio of -19,24% in 2001 and – 44,66% in 2002. This means that €1 of sales generated negative earnings. This is quite understandable with the crisis The leverage ratio on the other hand is increasing until 2001 to reach almost 5 and then become negative in 2002 before going back to its level in 2003. This indicates how much Assets can be used with €1 of Equity and despite the negative number in 2002, the ratio remains quite strong. Then, let’s analyse the leverage effect.

The ratio remains is increasing from 1999 where it is almost 50% debt -50% Equity financing to a ratio of 4,24 in 2003 (4 times more debt than Equity!), except in the aftermath of the crisis in 2002 where the ratio was negative due to negative equity. This can be explaining by a strong in-debtment from France Telecom to make up for a decrease in earnings and to finance acquisitions. As a result, France Telecom appears heavily indebt.
Regarding the ROCE (Return on Capital Employed), it is lower than the ROE but doesn’t suffer from the crisis: this indicates the ability of France Telecom to make up for the difficult time. Moreover, the ROCE with debt is twice as big as the ROCE without debt in 1999, 2000, 2001, which is a proof on the positive effect of debt. However, it become negative in 2002 (- 23%) showing that in time of crisis Debt can be a burden. A last point to rise is related to the negative working capital of France Telecom, which is very good and shows the ability of the firm to generate revenue without investing in its NWC. 2)
According to the data we have for years 1999-2003, the performance of France Telecom was quite poor, after having reached a high