Companies HD and LD are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company HD has the higher debt ratio. Which of the following statements is CORRECT?
A) Company HD has a lower total assets turnover than Company LD.
B) Company HD has a lower equity multiplier than Company LD.
C) Company HD has a higher fixed assets turnover than Company B.
D) Company HD has a higher ROE than Company LD.
E) Company HD has a lower operating income (EBIT) than Company LD.

Question

Quizplus · Accepted Answer

Company HD has a higher debt ratio, which means it uses more debt financing. With the same ROA and profit margin, a higher debt ratio leads to a higher equity multiplier, resulting in a higher ROE (Return on Equity) for Company HD compared to Company LD.

Companies HD and LD Are Both Profitable, and They Have