Over time, what observation(s) best characterizes how ROE for a given firm should behave?

I. ROE will increase because the firm becomes more efficient.
II. ROE will decrease because competition will erode profitability.
III. The answer depends on how conservative the firm's accounting policies are, which affects its reported earnings.

A)I and III
B)II and III
C)I, II, and III are all possibilities
D)None of the above

Question

Over time, what observation(s) best characterizes how ROE for a given firm should behave?

I. ROE will increase because the firm becomes more efficient.
II. ROE will decrease because competition will erode profitability.
III. The answer depends on how conservative the firm's accounting policies are, which affects its reported earnings.

A)I and III
B)II and III
C)I, II, and III are all possibilities
D)None of the above

Quizplus · Accepted Answer

The behavior of ROE for a given firm can be influenced by multiple factors, including changes in efficiency, competition, and accounting policies. Therefore, all three options (I, II, and III) are possible observations. As such, choice C is the correct answer.

Over Time, What Observation(s) Best Characterizes How ROE for a Given