A firm with a substandard return on total assets can improve its return on equity, all else remaining the same, by
A) increasing its debt ratio.
B) increasing its total asset turnover.
C) decreasing its debt ratio.
D) decreasing its total asset turnover.

Question

Quizplus · Accepted Answer

By increasing its debt ratio, the firm will have higher financial leverage, resulting in a higher return on equity. However, this also increases the firm's financial risk.

A Firm with a Substandard Return on Total Assets Can