The return on equity ratio is calculated as:
A)dividends paid divided by the average book value of shareholders' equity.
B)net income divided by the average number of outstanding common shares.
C)dividends divided by the average number of total shares.
D)net income divided by the average shareholders' equity.

Question

Quizplus · Accepted Answer

The return on equity ratio is calculated by dividing the net income by the average shareholders' equity. It measures the profitability of a company by showing how much profit is generated for each dollar invested by shareholders. Option A is incorrect because it calculates the dividend payout ratio, not the return on equity. Option B is incorrect because it calculates the earnings per share, not the return on equity. Option C is incorrect because it calculates the dividend yield ratio, not the return on equity.

The Return on Equity Ratio Is Calculated As