Return on Assets (ROA)can Be Used to Assess Whether a Firm

question 43

True/False

Return on assets (ROA)can be used to assess whether a firm is likely to earn a return on reinvested earnings that exceeds its cost of equity capital.

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Definitions:

Marginal Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the rate at which the last dollar of income is taxed.

Depreciation

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Fixed Costs

Costs that do not change with the level of production or sales activities within a certain range or period of time, such as rent, salaries, and insurance.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating how much contributes to covering fixed costs and generating profit.