May Company's return on equity was 21% and the financial leverage ratio was 13% (positive).What was the return on assets?

Question

Quizplus · Accepted Answer

Return on Equity (ROE) is calculated as Return on Assets (ROA) multiplied by the Financial Leverage Ratio. Given ROE is 21% and the Financial Leverage Ratio is 13%, ROA can be calculated as ROE divided by the Financial Leverage Ratio, which is 21% / 13% = 8%.

May Company's Return on Equity Was 21% and the Financial