If Brewster's produces a return on assets of 14 percent and also a return on equity of 14 percent,then the firm
A)has no net working capital.
B)is using its assets as efficiently as possible.
C)has no debt of any kind.
D)also has a current ratio of 14.
E)has an equity multiplier of 1.4.

Question

Quizplus · Accepted Answer

When a firm has a return on assets (ROA) equal to its return on equity (ROE), it indicates that the firm is not using any debt financing. This is because ROE is amplified by the use of debt due to leverage. If ROA and ROE are equal, it means there is no leverage effect, implying the firm has no debt.

If Brewster's Produces a Return on Assets of 14 Percent