If a firm uses any debt at all and if the firm generates positive earnings for common stockholders,then which of the following below is TRUE?

Question

Quizplus · Accepted Answer

If the firm uses any debt at all, it means that it has financial leverage which amplifies both the return on assets (ROA) and the return on equity (ROE). However, since using debt increases the cost of capital, the ROE will be greater than the ROA only if the firm generates positive earnings for common stockholders. Hence, the correct answer is A) ROE > ROA.

Option D) Gross profit margin < net profit margin is not directly related to the given information and can't be determined from it.

If a Firm Uses Any Debt at All and If