Final answer:
A high return on assets (ROA) indicates a profitable company, reflecting the company's efficiency in using its assets to generate earnings. It is a measure of financial health, rather than a sign of financial difficulty or the need for new asset purchases.
Step-by-step explanation:
A high return on assets (ROA) indicates a profitable company. This financial measure is used to assess how effectively a company's management is using its assets to generate earnings. The higher the ROA, the more efficiently a company is converting its investment in assets into profit.
Option 'b' describes the asset turnover ratio, which is another financial metric that shows how efficiently a company utilizes its assets to generate sales, but it is not directly indicative of profitability. Option 'c', the need for new asset purchases, may or may not be suggested by a high ROA, as asset investment decisions depend on many factors including the company's growth strategy and existing asset conditions. Finally, option 'd', stating that the company may be in financial difficulty, is typically not associated with a high ROA; a high return on assets is usually a sign of a company's financial health, not difficulty.
By generating profit through effective use of assets, companies can create financial capital that can then be reinvested in various ways, such as in equipment, structures, or research and development. These investments can contribute to the sustainability and growth of the firm, as long as the company manages its sources of financial capital wisely.