If a ﬁrm produces a 10 % return on assets and also a 10 % return on equity, then the ﬁrm:
A) Has no debt of any kind.
B) Is using its assets as eﬃciently as possible.
C) Has no net working capital.
D) Also has a current ratio of 10.
E) Has an equity multiplier of 2.

Question

Quizplus · Accepted Answer

If a firm has a 10% return on assets and a 10% return on equity, it indicates that the firm has no debt. This is because the return on equity would be higher than the return on assets if there was any leverage (debt) involved.

If a ﬁRm Produces a 10 % Return on Assets