Return on equity measures the profitability of a company's shareholder investment, whereas return on assets measures the profitability of all invested assets. It is typical for banks to have a higher return on assets than return on equity because banks often rely heavily on borrowed funds, which increases their assets and subsequently their returns.

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For Banks

Question 147

Multiple Choice

For banks

A) return on assets exceeds return on equity.
B) return on assets equals return on equity.
C) return on equity exceeds return on assets.
D) return on equity is another name for net interest margin.

Correct Answer: