When would the "return on equity" equal the "return on assets"?
A) Whenever the debt to equity ratio is one
B) Whenever the debt ratio is zero
C) Whenever a firm has positive net worth
D) Whenever the firm has positive net worth and positive net income

Question

Quizplus · Accepted Answer

If you recall from the section on the Du Pont Analysis,
ROE = ROA × (1 + 11ea7fdb_fc2f_60a7_a768_8bbe0d573567_TB2902_11 )
So, in order for ROE = ROA the debt to equity ratio must equal zero. Debt in the Du Pont system is equal to total liabilities. The debt ratio is defined as total liabilities over total assets. If the debt ratio is zero, then debt in the Du Pont system is zero and D/E = 0.

When Would the "Return on Equity" Equal the "Return on Assets