The rate of return on total assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.

Question

Quizplus · Accepted Answer

The rate of return on total assets measures the company's efficiency in using its assets to generate earnings, while the rate of return on common stockholders' equity measures the profitability for the owners of the company. Trading on the equity at a gain refers to using borrowed funds at a lower cost than the return generated by those funds, which can increase the rate of return on common stockholders' equity, not necessarily the rate of return on total assets.

The Rate of Return on Total Assets Will Be Greater