The ROE ratio measures:
A) the return stockholders receive in dividends for each dollar of their investment.
B) the return stockholders receive in dividends and stock price growth for each dollar of their investment.
C) the amount earned by the company on each dollar contributed by stockholders and earnings reinvested in the company.
D) the amount earned by the company on each dollar obtained from equity and debt financing.

Question

Quizplus · Accepted Answer

The ROE (return on equity) ratio measures how much profit a company generates on each dollar contributed by stockholders and earnings that have been reinvested in the company. It is calculated by dividing net income by total shareholder equity. This ratio indicates how efficiently a company is using its equity to generate profits. It does not take into account dividends or stock price growth.

The ROE Ratio Measures