Which of the Following Statements Regarding the Return on Equity

question 43

Multiple Choice

Which of the following statements regarding the return on equity (ROE) measure is not true?

• A)ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
• B)ROE equals net income divided by average total stockholders' equity.
• C)ROE is affected by a company's use of leverage.
• D)A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.

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Definitions:

Preproduction Prototypes

Early versions of a product made prior to full-scale production, used for testing and validation.

Capitalized

Costs that are added to the cost basis of an asset on the balance sheet rather than being expensed immediately.

Intangibles Purchase

The act of acquiring non-physical assets such as licenses, patents, or copyrights that provide the purchaser with exclusive rights or significant value.

R&D Expense

Costs associated with the research and development activities of a company, aimed at the creation of new products or enhancement of existing products.