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

Question

Quizplus · Accepted Answer

Return on Equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. It is calculated by dividing net income available to common shareholders by the average common shareholders' equity during a period.

Return on Equity Is a Ratio That