Which of the following will increase return on equity?
A) An increase in sales with a proportionate increase in costs and expenses
B) An increase in sales relative to the asset base
C) A decrease in leverage
D) Both A and C

Question

Quizplus · Accepted Answer

Return on equity is calculated as net income divided by shareholders' equity. Therefore, increasing sales relative to the asset base will increase net income without increasing equity, resulting in a higher return on equity. A and C are incorrect because an increase in costs and expenses (A) or a decrease in leverage (C) could potentially decrease net income and therefore decrease return on equity.

Which of the Following Will Increase Return on Equity