Return on Equity Is a Ratio That

question 72

Multiple Choice

Return on equity is a ratio that:

• A) is calculated by dividing net income plus preferred dividends by average common shareholders' equity
• B) shows the relationship between net income available for common shareholders and average common shareholders' equity
• C) is calculated by dividing net income plus preferred dividends by average common shareholders' equity and shows the relationship between net income available for common shareholders and average common shareholders' equity
• D) cannot be calculated if the company has preferred shares in addition to common shares

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Definitions:

Cost Method

An accounting approach used for recording investments, where the investment is recorded at its acquisition cost and adjustments are made for dividends or significant changes in value.

Stock Split

A corporate action where a company divides its existing shares into multiple shares to boost the liquidity of the shares.

Common Stock

A form of corporate equity ownership, representing a claim on a portion of a company’s profits and assets.