The Following Ratios Were Computed from the Financial Statement of Darren

question 50

Multiple Choice

The following ratios were computed from the financial statement of Darren Technologies:
$\begin{array}{|l|l|l|l|}\hline & 2018 & 2017 & 2016 \\\hline \text { Return on equity } & 0.30 & 0.27 & 0.23 \\\hline \text { Return on assets } & 0.17 & 0.20 & 0.22 \\\hline \text { Common equity leverage } & 0.87 & 0.90 & 0.92 \\\hline \text { Capital structure leverage } & 2.22 & 1.60 & 1.24 \\\hline \text { Profit margin } & 0.11 & 0.10 & 0.09 \\\hline \text { Asset turnover } & 1.69 & 2.27 & 2.87 \\\hline\end{array}$
Which of the following statements is true?

• A)There has been a steady decline in ROE from 2016 through 2018.
• B)The increase in ROA is due primarily to the changes in asset turnover.
• C)The changes in ROA could be due to increasing sales.
• D)The change in ROA could be due to a large increase in the asset base of the company.

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Definitions:

Total Assets

The sum of all assets owned by a company, including current, fixed, intangible, and financial assets.

Sales-Type Lease

A leasing arrangement where the lessor recognizes sales revenue at the lease inception, reflecting the sale of an asset.

Operating Lease

A lease agreement allowing for the use of an asset without ownership, typically with shorter terms and cancelable by the lessee under specific conditions.

Property, Plant, and Equipment

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash within a year.