A decrease in the return on equity ratio could be caused by an increase in
A) tax rate.
B) cost of goods sold.
C) total assets.
D) any of the above

Question

Quizplus · Accepted Answer

The return on equity (ROE) ratio measures a company's profitability in relation to shareholders' equity. An increase in the tax rate, cost of goods sold, or total assets can all lead to a decrease in ROE. Higher taxes reduce net income, higher cost of goods sold reduces gross profit, and an increase in total assets without a proportional increase in net income lowers the ROE ratio.

A Decrease in the Return on Equity Ratio Could Be