Mirror Emporium's sole owner, Fred Martin, is happy about his $100,000 profit.However, while he knows that the firm is profitable, he wants to know how effectively his investment is being used.What computation would you recommend?

Question

Quizplus · Accepted Answer

The best computation to evaluate the effectiveness of Fred Martin's investment is return on owners' equity (ROE). ROE measures how much profit a company generates for each dollar of shareholders' equity. It indicates the efficiency with which the management is using shareholder funds. As Mirror Emporium's sole owner, Fred Martin's investment is equivalent to the company's equity. Therefore, ROE will provide him with the information he needs to assess how effectively his investment is being used.

Mirror Emporium's Sole Owner, Fred Martin, Is Happy About His