If a ﬁrm decreases its operating costs, all else constant, then:
A) The proﬁt margin increases while the return on equity decreases.
B) The return on assets increases while the return on equity decreases.
C) The total asset turnover rate decreases while the proﬁt margin increases.
D) Both the proﬁt margin and the equity multiplier increase.
E) Both the return on assets and the return on equity increase.

Question

Quizplus · Accepted Answer

Decreasing operating costs increases net income, which improves both the return on assets (ROA) and return on equity (ROE) as both are calculated using net income.

If a ﬁRm Decreases Its Operating Costs, All Else Constant