Beta Co. has both bonds and common stock on its balance sheet.The compnay's earnings for...

Beta Co. has both bonds and common stock on its balance sheet. The compnay's earnings for the period are $1,000,000. Which of the following statements is true about Beta Co.?

a) None of the statements is correct

b) It's return on equity (ROE) will be equal to its return asset (ROA)

c) It's return on equity (ROE) will be greater than its return on asset (ROA)

Expert Solution

Given about Beta Co.

It has both bond and common stock on its balance sheet

earning = $1000000

We know that, total assets = debt + equity

So, for Beta Co., assets are greater than equity

Return on equity ROE = earning/equity

Return on asset ROA = earning/total assets

So since total assets is greater than equity, ROA is less than ROE for Beta Co.

Hence option c is correct.

jeff jeffy answered 2 years ago

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