Class, indicate whether the following statement is true or false, then support your view

Accounting Sep 06, 2020

Class, indicate whether the following statement is true or false, then support your view.

Return on equity (ROE) will always be higher than than return on assets (ROA).

Expert Solution

The given statement is true.

Because ;

ROE = Net income / Total equity

ROA = Net income / Total assets

Total assets is calculated by debt and equity. Total assets will always greater than the equity if the company carries debt. The denominator of ROA is always greater than the denominator of ROE. So, the ROE is greater than the ROA. If, the company is not carry any debt than the ROA is equal to ROE.

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