If the total asset turnover decreases, then the return on equity will
A) decrease.
B) increase.
C) not change.
D) change, but in an indeterminate way.

Question

Quizplus · Accepted Answer

Return on equity is calculated as net income divided by shareholders' equity. Total asset turnover is calculated as net sales divided by total assets. If total asset turnover decreases, it means the company is generating less revenue per dollar of assets. This could be due to lower sales or inefficient use of assets. As a result, net income is likely to decrease, which will lead to a decrease in return on equity.

If the Total Asset Turnover Decreases, Then the Return on Equity