What effect would reducing total assets have on Katz’s return on assets if other values remain constant?

Return on assets (ROA) is a financial metric that measures how effectively a company is using its assets to generate profit. It is calculated by dividing the net income by the total assets. The formula can be expressed as:

[ \text{ROA} = \frac{\text{Net Income}}{\text{Total Assets}} ]

If total assets are reduced while keeping net income constant, the denominator of the ROA equation decreases. This decrement in total assets leads to a larger ratio since net income remains unchanged. Consequently, a decrease in total assets actually increases the return on assets, making the earlier selected answer incorrect.

Considering this, the correct understanding is that reducing total assets, with all else being constant, will indeed increase the return on assets. This increase occurs because a lower total asset value enhances the efficiency ratio, indicating better utilization of assets to yield profits.

Thus, the correct answer to the question would illustrate how the manipulation of total assets directly influences the calculated efficiency of that asset utilization, leading to a higher return on assets.