What Is Primarily Responsible for the Potential Distortion Among the ROA

question 23

Multiple Choice

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

• A)firms have different dividend payout ratios.
• B)some firms use fully depreciated assets.
• C)financial leverage varies among firms.
• D)unprofitable firms will not have any tax liability.

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Definitions:

Organization Expense

Organization expense refers to the costs associated with forming a business entity, such as legal fees, filing fees, and costs of issuing stock.

Paid in Capital in Excess

Financial capital received from investors above the par value of the shares issued, also known as additional paid-in capital.

Common Stock

Equity ownership in a corporation, giving holders voting rights and a share in the company’s profits through dividends.

Par Value

The face value of a bond or stock as stated by the issuing company, which does not necessarily match its market value.