The Rate of Return on Shareholders' Equity Indicates

question 254

Multiple Choice

The rate of return on shareholders' equity indicates:

• A) The margin of safety provided to creditors.
• B) The extent of "trading on the equity" or financial leverage.
• C) Profitability without regard to how resources are financed.
• D) The effectiveness of employing resources provided by owners.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as raw materials and direct labor costs.

Total Dollar Amount

The complete sum of money involved in a transaction, including all costs and taxes.

Level of Activity

A measure used in accounting and production to determine the extent to which a business operation is being utilized, often influencing cost behavior.

Direct Materials Cost

The cost of materials that are an integral part of the finished product.