Which of the following statements is true?
A)The return on assets ratio indicates whether the company can pay its current debt when it becomes due.
B)The causes for an increase or decrease in the return on assets ratio can be examined by calculating its two components: return on sales and asset turnover.
C)If a company successfully applies leverage,its return on assets ratio will be greater than its return on common stockholders' equity ratio.
D)If a company's return on assets ratio increases,the increase can be the result of decreased liquidity.

Question

Quizplus · Accepted Answer

The return on assets ratio can be broken down into two components - return on sales and asset turnover - which can help identify the causes for an increase or decrease in the ratio. Option A is incorrect, as the ability to pay current debts is measured by the current ratio. Option C is incorrect, as leverage can increase return on equity, but it is not directly related to return on assets. Option D is incorrect, as increased return on assets is usually the result of increased profitability and efficiency, not decreased liquidity.

Which of the Following Statements Is True