The return on equity can be calculated as
A)Profit margin × 1 / Capital intensity ratio × Equity multiplier
B)Return on assets × b
C)Profit margin × Total asset turnover × Debt-equity ratio
D)Profit margin × 1 / Equity multiplier × (1 + Debt-equity ratio)
E)Return on assets × Debt-equity ratio

Question

Quizplus · Accepted Answer

The return on equity (ROE) can be calculated by multiplying the profit margin (Net Income / Sales) by 1 divided by the product of the capital intensity ratio (Total Assets / Sales) and equity multiplier (Equity / Total Assets). This formula reflects the fact that ROE can be decomposed into three components: profit margin, asset turnover (the inverse of capital intensity), and financial leverage (the equity multiplier).

The Return on Equity Can Be Calculated as