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:

Increase Liabilities

This occurs when a company incurs more debts or obligations, leading to an uptick in the claims against its assets.

Borrowed Money

Funds that have been obtained through loans that are expected to be repaid with interest.

Increase Liabilities

The action or process resulting in a rise in the total amount of obligations or debts owed by a business.

Purchased Supplies

Items bought for use in the operation of a business, not intended for resale.