Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

Financial Accounting

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

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Multiple Choice

Which of the following changes in the Return on Assets (ROA) ratio generally provides good news about a company?

An increase in ROA

A decrease in ROA

No change in ROA

A negative ROA

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Verified step by step guidance

Understand the concept of Return on Assets (ROA): ROA is a financial ratio that measures how efficiently a company uses its assets to generate profit. It is calculated using the formula:

\frac{Net Income}{Total Assets}

. A higher ROA indicates better efficiency in asset utilization.

Analyze the implications of an increase in ROA: An increase in ROA suggests that the company is generating more profit per unit of asset, which is generally considered good news as it reflects improved operational efficiency and profitability.

Evaluate the implications of a decrease in ROA: A decrease in ROA indicates that the company is generating less profit per unit of asset, which could signal declining efficiency or profitability, generally considered bad news.

Consider the implications of no change in ROA: No change in ROA suggests that the company’s efficiency in using its assets to generate profit remains constant. This is neutral news, as it does not indicate improvement or deterioration.

Understand the implications of a negative ROA: A negative ROA means the company is incurring losses rather than generating profit from its assets. This is generally considered bad news as it reflects poor financial performance.