For most profitable companies, the return on total assets will be less than:
A) the rate earned on sales.
B) cannot be determined without more information.
C) the rate earned on total liabilities and stockholders' equity.
D) the return on stockholders' equity.

Question

Quizplus · Accepted Answer

Return on total assets is calculated as net income divided by total assets. Return on stockholders' equity is calculated as net income divided by stockholders' equity. Since stockholders' equity is a subset of total assets, the return on stockholders' equity will always be higher than the return on total assets. Therefore, the answer is D.

For Most Profitable Companies, the Return on Total Assets Will