By comparing return on assets to return on common equity,statement users can determine
A)if debt financing is being used to enhance the return earned by shareholders.
B)past patterns of profitability within divisions.
C)if return on investments exceed the current market yield.
D)management's investment strategies.

Question

Quizplus · Accepted Answer

Return on assets (ROA) measures the net income earned by a company in relation to its total assets. On the other hand, return on common equity (ROCE) measures the net income earned by a company in relation to its common equity. By comparing the two ratios, users can determine how much debt financing the company is using to enhance the return earned by shareholders. If ROCE is higher than ROA, it means that the company is using debt to amplify the returns earned by equity shareholders. Therefore, the best choice is A.

By Comparing Return on Assets to Return on Common Equity,statement