Asked by Emily Jackson on Jun 25, 2024
Verified
When return on assets is high at a highly levered firm,return on common equity will be low.
Highly Levered Firm
A company that has more debt than equity, indicating it uses significant leverage in its capital structure.
Return on Assets
A profitability ratio indicating the efficiency with which a company uses its assets to generate earnings, calculated as net income divided by total assets.
- Gain knowledge of the definitions and methodologies for calculating important financial metrics, like return on assets and asset turnover.
Verified Answer
AG
Antoine GaudinJun 29, 2024
Final Answer :
False
Explanation :
When return on assets is high at a highly levered firm, the return on common equity can be even higher due to the leverage effect, where borrowed funds are used to amplify returns.
Learning Objectives
- Gain knowledge of the definitions and methodologies for calculating important financial metrics, like return on assets and asset turnover.
Related questions
Return on Assets Is Defined as EBI Divided by Total ...
The Long-Term Asset Turnover Ratio Captures Information About Property,plant,and Equipment ...
A Company Had Net Income of $43,000,net Sales of $380,500,and ...
Eady Wares Is a Division of a Major Corporation ...
Fabbri Wares Is a Division of a Major Corporation ...