# ECONOMICS

## COST ACCOUNTING

### PERFORMANCE MEASUREMENT

 Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If a firm produces a return on assets of 15 percent and also a return on equity of 15 percent, then the firm:
 A has no net working capital. B also has a current ratio of 15. C has an equity multiplier of 2. D has no debt of any kind.
Explanation:

Detailed explanation-1: -also has a current ratio of 15. has no net working capital. If a firm produces a return on assets of 15 percent and also a return on equity of 15 percent, then the firm: has no debt of any kind. is using its assets as efficiently as possible.

Detailed explanation-2: -Return on Equity is a profitability metric used to compare the profits earned by a business to the value of its shareholdersâ€™ equity. ROE is calculated as Net Income divided by Shareholders Equity and is presented as a percentage. A 15% ROE indicates that the corporation earns \$15 on every \$100 of its share capital.

Detailed explanation-3: -If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm: may have short-term, but not long-term debt.

Detailed explanation-4: -If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:-May have short-term, but not long-term debt.

Detailed explanation-5: -Return on equity will be higher than return on assets if there is higher amounts of debt in the capital structure. A current ratio of 2 to 1 is always acceptable for a company in any industry. Asset utilization ratios can be used to measure the effectiveness of a firmâ€™s managers.

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