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Question 12 pts The following ratios were computed from the financial statement of Darren Technologies: 2018...

Question 12 pts

The following ratios were computed from the financial statement of Darren Technologies:

2018

2017

2016

Return on equity

0.30

0.27

0.23

Return on assets

0.17

0.20

0.22

Common equity leverage

0.87

0.90

0.92

Capital structure leverage

2.22

1.60

1.24

Profit margin

0.11

0.10

0.09

Asset turnover

1.69

2.27

2.87

Which of the following statements is true?

Group of answer choices

There has been a steady decline in ROE from 2016 through 2018.

The increase in ROA is due primarily to the changes in asset turnover.

The changes in ROA could be due to increasing sales.

The change in ROA could be due to a large increase in the asset base of the company.

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Answer #1

The answer is:

The change in ROA could be due to a large increase in the asset base of the company.

  • There has been steady growth in ROE from 2016 through 2018.
  • ROA = Net income / Average Total Assets, where it shows the returns that business covers on its total assets. ROA of the company is declining from 2016 to 2018. This change could either be due to reduction of net income or due to large increase in assets base of the company.
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