The following ratios were computed from the financial statement of Darren Technologies:
$\begin{array}{|l|l|l|l|}
\hline & 2018 & 2017 & 2016 \
\hline \text { Return on equity } & 0.30 & 0.27 & 0.23 \
\hline \text { Return on assets } & 0.17 & 0.20 & 0.22 \
\hline \text { Common equity leverage } & 0.87 & 0.90 & 0.92 \
\hline \text { Capital structure leverage } & 2.22 & 1.60 & 1.24 \
\hline \text { Profit margin } & 0.11 & 0.10 & 0.09 \
\hline \text { Asset turnover } & 1.69 & 2.27 & 2.87 \
\hline
\end{array}$
Which of the following statements is true?
A)There has been a steady decline in ROE from 2016 through 2018.
B)The increase in ROA is due primarily to the changes in asset turnover.
C)The changes in ROA could be due to increasing sales.
D)The change in ROA could be due to a large increase in the asset base of the company.

Question

Quizplus · Accepted Answer

The Return on Assets (ROA) has decreased from 2016 to 2018, which could be due to an increase in the asset base, as indicated by the decreasing asset turnover ratio over the same period.

The Following Ratios Were Computed from the Financial Statement of Darren