When a company's ROE is greater than its ROA for a given time-period, it could be that
A) the company could borrow at an after-tax rate that was higher than the rate earned by investing in assets
B) the company could borrow at an after-tax rate that was less than the rate earned by investing in assets.
C) the company has no debt
D) the level of debt has no impact on the ROA

Question

Quizplus · Accepted Answer

When a company's Return on Equity (ROE) is greater than its Return on Assets (ROA), it often indicates that the company is using debt effectively. Specifically, it suggests that the company is able to borrow money at a rate lower than the return it generates from investing those funds in its assets. This leverage effect enhances the ROE compared to the ROA.

When a Company's ROE Is Greater Than Its ROA for a Given