If a firm decreases its operating costs, all else constant, then:
A)the profit margin increases while the equity multiplier decreases.
B)the return on assets increases while the return on equity decreases.
C)the total asset turnover rate decreases while the profit margin increases.
D)both the profit margin and the equity multiplier increase.
E)both the return on assets and the return on equity increase.

Question

Quizplus · Accepted Answer

Decreasing operating costs increases net income, which in turn increases both return on assets (ROA) and return on equity (ROE), assuming assets and equity remain constant.

If a Firm Decreases Its Operating Costs, All Else Constant