Which of the following will increase return on equity?
A)An increase in sales with a proportionate increase in costs and expenses
B)An increase in sales relative to the asset base
C)A decrease in leverage
D)A decrease in sales

Question

Quizplus · Accepted Answer

Return on equity is calculated by dividing net income by shareholders' equity. Therefore, an increase in sales relative to the asset base will result in higher net income and thus, increase return on equity. The other options either do not directly affect net income (option A) or actually decrease shareholders' equity (option C) or decrease net income (option D), both of which would result in a decrease in return on equity.

Which of the Following Will Increase Return on Equity