All else being equal,if net income decreases:
A)EPS decreases and ROE increases.
B)EPS and ROE both decrease.
C)EPS increases and ROE decreases.
D)EPS and ROE both increase.

Question

Quizplus · Accepted Answer

EPS = (Net income − Preferred dividends)÷ Average number of common shares outstanding
Return on equity (ROE)= (Net income − Preferred dividends)÷ Average common stockholders' equity
Since net income is in the numerator of the calculations for both EPS and ROE,a decline in net income will cause both of these ratios to decrease.

All Else Being Equal,if Net Income Decreases