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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Below is an equation that breaks down the concept of Return on Equity into its components (individual
parts).
ROE =
Net income
Sales
Net Profit margin
Sales
Total assets
Asset turnover
ROA
X
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?
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