What does a financial leverage index greater than one indicate about a firm? Return on assets exceeds the return on equity. Return on equity exceeds the return on assets. The firm is not employing debt successfully. The firm does not generate enough funds to cover interest payments.

Question

Adriel Erickson

Business

30 November, 11:57

What does a financial leverage index greater than one indicate about a firm? Return on assets exceeds the return on equity. Return on equity exceeds the return on assets. The firm is not employing debt successfully. The firm does not generate enough funds to cover interest payments.

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Nataly Johns · Answer 1

Return on equity exceeds the return on assets.

Explanation:

Many investors look to the amount of income a company is able to produce from given investment of resources as a measure of its fundamental strength.

Return on assets and return on equity are two different ways of expressing internal returns, and they are both quite simple. The return on assets equals the net income from a company during a period divided by the average assets of the company over the same period. The return on equity is the company's net income divided by its average shareholders' equity.

A company's return on assets should be smaller that its return on equity. if the return on assets is larger than the return of equity, then there's either a mistake in the calculations or you're looking at a company in rough shape.