Hilton Publishing and Jordan Publishing have identical debt-equity ratios and proﬁt margins. However, Hilton's ROA is higher than Jordan's. Therefore, it must be true that:
A) Hilton has a lower total asset turnover ratio.
B) Jordan's ROE is higher than Hilton's.
C) Hilton uses its assets more eﬃciently to generate sales.
D) Hilton's operating eﬃciency is higher than Jordan's.
E) Hilton has a lower investment in total assets than Jordan does.

Question

Quizplus · Accepted Answer

Since Hilton has a higher ROA than Jordan, it means that Hilton generates more net income per dollar of assets compared to Jordan. Given that both companies have identical debt-equity ratios and profit margins, the only possible explanation for Hilton's higher ROA is that it uses its assets more efficiently to generate sales. Therefore, the correct choice is C.

Hilton Publishing and Jordan Publishing Have Identical Debt-Equity Ratios and Proﬁt