If GUW and BFG have the same return on equity,then:
A) Only I is true
B) Only III is true
C) Only II and III are true
D) Only I and III are true
I.The two companies must have the same operating performance.
II.If GUW has higher leverage than BFG,it must also have higher operating performance.
III.If BFG has lower operating performance than GUW,it must have higher leverage.

Question

Quizplus · Accepted Answer

If GUW and BFG have the same return on equity, it means that they have the same profitability relative to their shareholders' equity. It does not necessarily imply that they have the same operating performance or leverage. Therefore, statements I and III cannot be true. Statement II is also not necessarily true since higher leverage does not always lead to higher operating performance. Thus, only statement III is true: if BFG has lower operating performance, it must have higher leverage (to achieve the same ROE as GUW).

If GUW and BFG Have the Same Return on Equity,then