If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:
A) may have short-term, but not long-term debt.
B) is using its assets as efficiently as possible.
C) has no net working capital.
D) has a debt-equity ratio of 1.0.
E) has an equity multiplier of 1.0.

Question

Quizplus · Accepted Answer

If a company has the same return on assets (ROA) and return on equity (ROE), it indicates that the company is not using debt financing, or in other words, its debt-equity ratio is 0. This situation corresponds to an equity multiplier (assets/equity) of 1.0, because the company's assets are fully financed by equity, not debt.

If a Company Produces a Return on Assets of 14