The return on equity is the product of:
A) return on assets multiplied by the ratio of equity to assets
B) the return on assets multiplied by the inverse of the ratio of equity to assets
C) the profit margin multiplied by the asset utilization
D) none of the above.

Question

Quizplus · Accepted Answer

The return on equity (ROE) is calculated as the return on assets (ROA) multiplied by the financial leverage, which is the inverse of the equity to assets ratio. This reflects how effectively a company uses borrowed funds to generate profits.

The Return on Equity Is the Product Of