Answered: Company A and Company B have…

Company A and Company B have debt-to-total asset ratios of 45% and 30%, respectively, and return on assets (ROA) of 10% and 8%, respectively. Which company has a greater return on equity (ROE)?

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 24MCQ: When analyzing a companys debt to equity ratio, lithe ratio has a value that is greater than one,...

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Question

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Please explain the correct approach for solving this general accounting question.

Company A and Company B have debt-to-total asset
ratios of 45% and 30%, respectively, and return on assets
(ROA) of 10% and 8%, respectively. Which company has
a greater return on equity (ROE)?

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