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Company low earning power and high interest cost cause financial changes which have
Answer & Solution
Correct Answer:
Option
B
Company low earning power and high interest cost cause financial changes which have high return on assets. The higher the ROA number, the better, because the company is earning more money on less investment.
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LoginA. high return on equity
B. high return on assets
C. low return on assets
D. low return on equity
Answer: Option B
High interest costs mean a large portion of earnings is being used to pay debt interest.
These two factors reduce net income, which in turn reduces Return on Equity (ROE).
ROE = Net Income / Shareholder's Equity
So when net income is low, ROE becomes low.