The return on assets ratio will be greater than the rate of return on common shareholders' equity if the company has been successful in trading on the equity.

Question

Quizplus · Accepted Answer

The return on assets ratio measures how efficiently a company is using its assets to generate profits, while the rate of return on common shareholders' equity measures the return on investment for shareholders. These ratios are independent of each other and cannot be directly compared. The company's success in trading on equity will primarily affect its profitability and return on equity, but not necessarily its overall asset efficiency. Therefore, it is not necessarily true that the return on assets will be greater than the rate of return on common shareholders' equity.

The Return on Assets Ratio Will Be Greater Than the Rate