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.
-The company purchased raw materials on credit for $400 000.This transaction will:
A) decrease ROA,ROE and CR.
B) decrease ROA and CR,but not ROE.
C) decrease ROA only.
D) have no effect.

Question

Quizplus · Accepted Answer

Purchasing raw materials on credit increases current liabilities without immediately affecting net income or equity, thus decreasing the current ratio (CR) and return on assets (ROA) due to the increase in total assets. However, it does not directly affect return on equity (ROE) as equity remains unchanged by this transaction.

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