May Company's return on equity was 21% and the financial leverage ratio was 13% (positive). What was the return on assets?
A) 8%
B) 13%
C) 21%
D) 34%

Question

Quizplus · Accepted Answer

The return on assets (ROA) can be calculated using the relationship between return on equity (ROE), financial leverage (FL), and ROA itself, where ROE = ROA + (ROA * FL). Given ROE is 21% and FL is 13%, we can solve for ROA, which is approximately 8%.

May Company's Return on Equity Was 21% and the Financial