For a given level of sales and holding all other financial statement items constant a company’s return on equity (ROE) will
Accounting MCQs | Accounting MCQs

For a given level of sales and holding all other financial statement items constant a company’s return on equity (ROE) will

Increase as their debt ratio decreases.
Decrease as their cost of goods sold as a percent of sales decrease.
Decrease as their total assets increase.
Increase as their equity increases.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. A firm’s return on equity is a measure of how much equity capital is employed to generate its level of earnings. In this case, an increase in total assets means an increase in equity (since all other financial statement items are being held constant). Equity is the denominator, and an increase in the denominator means a decrease in the overall ratio.