The following question relates to PQR,which has the following ratios: return on assets, (ROA)10 per cent;return on equity (ROE)12 per cent;and current ratio (CR)of 1.8:1.
-Additional credit sales of $2 million (cost price $1.5 million)are made.This transaction will:
A) increase ROA,ROE and CR.
B) increase ROA and ROE but not CR.
C) increase ROA and CR but not ROE.
D) increase ROA,increase ROE and decrease CR.

Question

Quizplus · Accepted Answer

The increase in sales will increase both assets and equity, but the increase in assets will be greater, leading to an increase in ROA. The increase in equity will also lead to an increase in ROE. The current ratio will remain unchanged as both assets and current liabilities will increase by the same amount.

The Following Question Relates to PQR,which Has the Following Ratios