Question

When is the return on assets equal to the return on equity? A. When the current...

When is the return on assets equal to the return on equity?

A.

When the current ratio of the firm equals 1.
B.

When the profit margin is equal to the equity multiplier.
C.

When the firm only issues equity, and takes on no debt.
D.

When the firm issues no dividends for a given time period.
E.

When the equity multiplier is zero.
F.

When the firm issues equal amounts of long term debt and common stock.
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Homework Answers

Answer #1

The correct option is C. i.e. When the firm only issues equity and takes on no debt.

Explanation

​ROE=Net income/Shareholders’ Equity

Shareholder's equity = Total Asset - Liabilities

ROA = Net income /Total assets

The factor that make difference between ROE and ROA is Liabilities (Debt). The above equation says that the difference is of liabilities (debt).

When the firm doesn't have any Liabilities(debt) , the Return on assets (ROA) is equal to Return on equity (ROE).

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