Which of the following statements is correct?
A) Company A has the same ROA as company B
B) Company A has a lower ROE than company B
C) Company A has same ROE as company B
D) Company A has used financial leverage to increase its return to its shareholders

Question

Quizplus · Accepted Answer

Without any information regarding the actual values of ROA and ROE, it is impossible to determine whether options A and C are correct. However, option B can only be correct if the ROA of company A is lower than that of company B. Therefore, the best choice is D because it suggests that company A has used financial leverage to boost its ROE, which could be higher than that of company B despite a lower ROA.

Which of the Following Statements Is Correct