Which of the following strategies should improve a companies Return on equity (R

Question

Which of the following strategies should improve a companies Return on equity (ROE)? CHECK ALL THAT APPLY.

1. Increase the interest rate on its note payable for long-term debt obligation because it will reduce the companies net profit margin.

2. Use more equity financing in its capital structure, which will increase the equity multiplier.

3. Decrease the amount of debt financing used by the company, which will decrease the total asset turnover ratio.

4. use more debt financing in its capital and increase the equity multiplier.

Explanation / Answer

ROE = Net Profit Margin * Equity Multiplier * Total Asset Tunover

Only option 4 increases ROE
use more debt financing in its capital and increase the equity multiplier.

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