CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which one of the following would best explain a situation where the ratio of net income to total equity for a firm is higher than the industry average while the ratio of net income to total assets is lower than the industry average?
A. Net profit margin is higher than the industry average.
B. Debt ratio is higher than the industry average.
C. Asset turnover is higher than the industry average or the equity multiplier is lower than the industry average.

User Contributed Comments 6

User Comment
kalps If debt is higher then net income to to total equity will be higher becos less equity finance If debt is higher then TOTAL assets will be lower becos of the debt and therefore net income to total assets will be lower
araggl if debt is higher then total assets will be higher because of debt and therefore net income to total assets will be lower
sarath Total equity means ...without debt here....

Also as debt increases ==>> assets will also increase to balanace the accounting equation...
treakj Simply because Equity multiplier is Asset/Equity. Therefore if Debt/Asset is higher, then Asset/Equity is also higher
danrow I think the idea is A=OWE+L. IF E is low, it must be that L is high
hoyleng thanks danrow.!
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