The following question relate to PQR, which has the following ratios: return on assets, (ROA) 12%; return on equity (ROE) 14%; and current ratio (CR) of 2:1.
-Additional credit sales of $2 million (cost price $1.5 million)are made.This transaction will:
A) increase ROA,ROE and CR
B) increase ROA and ROE but not CR
C) increase ROA and CR but not ROE
D) increase ROA,increase ROE and decrease CR.

Question

Quizplus · Accepted Answer

The increase in sales will increase both assets and equity, but the increase in assets will be greater than the increase in equity. This will increase ROA and ROE. The increase in sales will also increase current assets, but the increase in current liabilities will be greater than the increase in current assets. This will decrease CR.

The Following Question Relate to PQR, Which Has the Following