One Important Difference Between Return on Assets (ROA)and Return on Common

question 66

Multiple Choice

One important difference between return on assets (ROA) and return on common shareholder's equity (ROCE) is that:

• A) ROA does not differentiate based on how a company finances its assets; ROCE does.
• B) ROA does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROCE does.
• C) ROCE does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROA does.
• D) ROCE does not differentiate based on how a company finances its assets; ROA does.

---

Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salary, or insurance, providing stability to a company's expense structure.

Margin of Safety

The difference between actual or projected sales and the break-even point, often expressed as a percentage.

Contribution Margin Ratio

A financial metric showing the percentage of revenue that exceeds total variable costs, indicating how much revenue contributes to fixed costs and profit.

Break-even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in no profit or loss.