Question

Since the ROA measures the firm's effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.

A. True
B. False

Answer 1

The statement is false because two firms with the same EBIT can have different net income and total assets, leading to variations in ROA.

Step-by-step explanation:

The statement that two firms with the same EBIT must have the same Return on Assets (ROA) is false. ROA is a measure of a company's profitability relative to its total assets and is calculated by dividing net income by total assets.

Even if two firms have the same EBIT, their net income can be different due to factors such as interest expenses and taxes, which are not considered in EBIT. Furthermore, the total assets may also differ, affecting the ROA calculation. Therefore, ROA can vary between two firms with the same EBIT due to differences in net income and total assets.