What is the relationship between return on assets (ROA) and return on equity (ROE)?

• ROA is always higher than ROE, since assets in the denominator exceed equity
• ROE equals ROA times the equity multiplier (assets/equity), so leverage drives the gap
• The two ratios move independently, since ROA reflects operations and ROE reflects only the share price
• They are always equal, because both divide the same net income by the company's total capital base
• ROE falls as a company takes on more debt, because interest expense eats into the return to shareholders