Could you help with the following answer (in laymans terms):
Not what you're looking for?
Could you help with the following answer (in laymans terms): Why do banks have a low ROA (relative to other industries) but a high ROE?
Purchase this Solution
Solution Summary
The solution discusses why do banks have a low ROA (relative to other industries) but a high ROE.
Solution Preview
This is because of what's known as the equity multiplier. The equity multiplier is a calculation of how the bank uses debt to finance their assets, which is also sometimes called financial leverage. The equity multiplier is calculated by dividing total assets by total equity. The result of the calculation shows the amount of total assets per dollar of equity. With banks, the ratio of equity to assets is generally low, which gives the bank a high return on equity with a low return on assets. Also, the banks are now competing with other institutions that are offering the products that banks typically offered. Various financial ...
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking