Return on equity is net income divided by average total equity. Decreasing inventory turnover will increase inventory, increasing the inventory holding costs and decreasing net income. This would decrease return on equity if equity were unchanged. However, decreasing use of equity financing, for example by repurchasing treasury stock, will decrease equity. Whether return on equity would be increased or decreased by this combination would depend on the magnitude of the two changes, so it is not possible to state that return on equity would be either increased or decreased based on the information given here.
Return on equity is net income divided by average total equity. Increasing inventory turnover will decrease inventory, thereby decreasing inventory holding costs and increasing net income. Decreasing use of equity financing, for example by repurchasing treasury stock, will decrease total equity. The combination of increased net income along with decreased equity will lead to increased return on equity.
Return on equity is net income divided by average total equity. Decreasing inventory turnover will increase inventory, thereby increasing inventory holding costs and decreasing net income. Increasing use of equity financing, for example by issuing additional common stock, will increase total equity. The combination of decreased net income along with increased equity will lead to decreased return on equity.
Return on equity is net income divided by average total equity. Increasing inventory turnover will decrease inventory, thereby decreasing inventory holding costs and increasing net income. This would increase return on equity if equity were unchanged. However, increasing use of equity financing, for example by issuing new common stock, will increase equity. Whether return on equity would be increased or decreased by this combination would depend on the magnitude of the two changes, so it is not possible to state that return on equity would be either increased or decreased based on the information given here.
|
