To Determine How Well Her Business Is Doing,Darlene Should Monitor

question 109

Multiple Choice

To determine how well her business is doing,Darlene should monitor the return on her investment (equity) because it is a better measure of performance than

• A)the return on assets ratio.
• B)the current ratio.
• C)the quick ratio.
• D)the absolute dollar amount of income.

---

Definitions:

Retention Ratio

The proportion of net income that is retained in the company rather than being paid out as dividends.

Retained Earnings

The portion of net profits not distributed as dividends to shareholders, but retained by the company for reinvestment in its core business or to pay debt.

Net Income

The amount of earnings left over after a company has paid all of its expenses and income taxes, indicating its profitability during a specific period, rephrased to provide a fresh perspective.

Cost of Equity

The return a company requires to decide if an investment meets its capital return criteria, essentially what it compensates investors.