If a firm has an ROA of 10% and an ROE of 10%, then the
A) operating results of the firm are improving.
B) firm has no financial leverage.
C) firm must have enough cash on hand to pay some extra dividends.
D) firm is losing money.

Question

Quizplus · Accepted Answer

When a firm has an ROA (Return on Assets) and an ROE (Return on Equity) that are equal, it indicates that the firm is not using financial leverage, or borrowing, to finance its assets. Financial leverage would typically cause ROE to differ from ROA, as debt impacts equity returns but not asset returns directly.

If a Firm Has an ROA of 10% and an ROE