Which of the following would result in lower return on assets for Katz if all other entries in their selected financial data were held constant?
A)A reduction in earnings before interest and taxes
B)An increase in asset turnover
C)A reduction in total assets
D)An increase in profit margin

Question

Quizplus · Accepted Answer

Return on assets (ROA) is calculated by dividing net income by total assets. If earnings before interest and taxes (EBIT) decreased, net income would also decrease, resulting in a lower ROA. The other options would either improve ROA (B and D) or have no impact because ROA would be adjusted for the change in total assets (C).

Which of the Following Would Result in Lower Return on Assets