A firm with a substandard return on total assets can improve its return on equity, all else remainingthe same, by
A) decreasing its debt ratio.
B) increasing its total asset turnover.
C) increasing its debt ratio.
D) decreasing its total asset turnover.

Question

Quizplus · Accepted Answer

Increasing the debt ratio increases financial leverage, which can improve return on equity if the cost of debt is lower than the return on assets.

A Firm with a Substandard Return on Total Assets Can