If firm X and firm Y have the same positive Operating ROA but firm X has negativ

Question

If firm X and firm Y have the same positive Operating ROA but firm X has negative ROCE (but not firm Y). Which of the following is most correct (do not assume what is not said in the problem)?

Firm Y uses higher leverage than X.

Firm X has lower net borrowing rate.

Firm X uses debt in its capital structure.

Firm X uses no debt in its capital structure.

Firm Y uses higher leverage than X.

Firm X has lower net borrowing rate.

Firm X uses debt in its capital structure.

Firm X uses no debt in its capital structure.

Explanation / Answer

The following is most correct:

Firm X uses debt in its capital structure, since only then the ROCE is suppose to be negative, due to higher interest burden on its income.

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