Below is an equation that breaks down the concept of Return on Equity into its components (individua parts). ROE= Net income Sales Net Profit margin ROA Sales Total assets Asset turnover Total assets Total equity Equity multiplier Using this equation, explain briefly how a company can improve its Return on Assets (ROA), and the impact of this improvement on its Return on Equity (ROE). Is an improvement in ROA that the only way that ROE can increase?

Below is an equation that breaks down the concept of Return on Equity into its components (individua parts). ROE= Net income Sales Net Profit margin ROA Sales Total assets Asset turnover Total assets Total equity Equity multiplier Using this equation, explain briefly how a company can improve its Return on Assets (ROA), and the impact of this improvement on its Return on Equity (ROE). Is an improvement in ROA that the only way that ROE can increase?

Name: Below is an equation that breaks down the concept of Return on Equity
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Description: Below is an equation that breaks down the concept of Return on Equity into its components (individualparts).ROE =Net incomeSalesNet Profit marginSalesTotal assetsAsset turnoverROAXTotal assetsTotal equityEquity multiplierUsing this equation, explain

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 27MCQ

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An increase in which of the following will increase the return on equity, all else constant?I. salesII. net incomeIII. depreciationIV. total equity
1. Which of the following is referred to as the Accounting Equation? Assets Liabilities + Equity Equity Liabilities + Assets Liabilities Assets + Equity Assets = Liabilities - Equity = 2. Which of the following make up the Finance Equation? (select all that apply) Revenues = Price x Volume Costs = Fixed + Variable Profit Revenues-Costs Income Sales - COGS
In the Du Pont method of analysis the two key drivers of return on equity are: a) Profit margin and return on assets b) Return on assets and the financing plan c) Profit margin and the financing plan In trying to measure a company's effectiveness in earning an adequate return on sales we would use which groups of ratios? a) Profitability ratios b) Asset utilization ratios c) Liquidity ratios
Which type of financial ratio tells you how well a company can cover its long-term liabilities? a) efficiency b) liquidity Oc) solvency O d) profitability e) profitability and efficiency
Which one of these ratios measures the efficiency at which a firm employs its assets? a. Return on equity b. Equity multiplier O C. Total asset turnover O d. P/E ratio O e. Profit margin
Which one of the following is a measure of long term solvency? A. Price earning ratio B. Profit margin C. Cash coverage ratio D. Receivables turnover E. Quick ratio
5.Which ratio or ratios measure the overall efficiency of the business in managing its investment in assets and in generating return to owners? A. Acid test ratioB. Return on assetsC. Return on equityD. Profit marginE. Financial leverage
4. According to the basic DuPont equation, a firm's ROE is the product of what other two ratios? a. net profit margin and the equity multiplier b. ROA and the equity multiplier C. net profit margin and return on equity d. net profit margin and total asset turnover
Which one of the following ratios is relevant to assess long-term solvency? A. Current Ratio B. Debt-Service Coverage Ratio C. Return on Equity D. Profit Margin
Which one of the following formulas is correct? O i) Profit margin = EBIT / Sales ii) ROA = ROE / Equity multiplier %3D O ii) Capital intensity ratio = 1 / Return on assets O iv) Quick ratio = Cash / Current liabilities
You wish to compute a firm's sustainable growth rate from its accounting statements. To do so, you could use the values of: Question 3 options: A) Total assets, net income, and the retention ratio. B) Net income, equity, and total assets. C) Net income, equity, and the dividend payout ratio. D) Interest paid, equity, and total assets. E) Total assets, interest paid, and equity.
If your goal is to determine how effective a firm in managing its assets, you would examine O Profit margin, Current ratio, Debt ratio O Price-earnings ratio, Times-interest-earned ratio, Operating Margin O Inventory turnover, Receivables turnover, Assets turnover O Quick ratio, Debt ratio, Times-interest-earned ratio