Return on assets measures the efficiency with which management:
A) Generates earnings from the assets under its control, regardless of how these assets are financed.
B) Generates earnings from the assets under its control, giving consideration to any costs of financing these assets.
C) Generates cash from the assets under its control, regardless of accrual-based measures of profitability.
D) Converts its current assets into cash.

Question

Quizplus · Accepted Answer

Return on assets (ROA) is a profitability ratio that calculates how efficiently a company is using its assets to generate profits. It measures the company's earnings for each dollar of assets it owns. Choice A is the correct answer as it states that ROA measures the efficiency of management in generating earnings from the assets under its control, irrespective of how these assets are financed. Choice B is incorrect as it suggests that the costs of financing these assets should be considered when calculating ROA, which is not the case. Choice C is incorrect as it talks about cash flows, which are different from profitability measures like ROA. Choice D is incorrect as it refers to a liquidity ratio that measures the ability of a company to convert its current assets into cash.

Return on Assets Measures the Efficiency with Which Management