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MC
MC.13-128 Which of the following statements is true? a. If a company's return on assets ratio increases, the increase can be the result of decreased liquidity b. The causes for an increase or decrease in the return on assets ratio can be examined by calculating return on sales and asset turnover. c. If a company successfully applies leverage, its return on assets ratio will be greater than its return c stockholders' equity ratio. d. The return on assets ratio indicates whether the company can pay its current debt when it becomes
Expert Solution
Answer
b .
Explanation
Return on Assets = Return/Total Assets
Or
Return on Assets = Return/Sales * Sales /Total Assets
Return on Assets = Return on Sales * Asset Turnover
So, The causes for an increase or decrease in the return on assets ratio can be examined by calculating its two components:
Return on Sales and Asset Turnover. It indicates trend analysis.
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