At the end of Year 1,the following information is available for Grumpy,Happy,and Doc Companies.

-Which company is the most profitable from the stockholders' perspective?
A)Grumpy
B)Happy
C)Doc
D)Cannot be determined

Question

At the end of Year 1,the following information is available for Grumpy,Happy,and Doc Companies.
 
-Which company is the most profitable from the stockholders' perspective?
A)Grumpy 
B)Happy 
C)Doc 
D)Cannot be determined

Quizplus · Accepted Answer

The return-on-equity ratio measures profitability from the owners' perspective.
Return-on-equity ratio = Net income ÷ Stockholders' equity
Grumpy: $118,000 ÷ $600,000 = 20% (rounded)
Happy: $190,000 ÷ $1,200,000 = 16% (rounded)
Doc: $150,000 ÷ $1,200,000 = 13% (rounded)
Grumpy has the highest return-on-equity ratio.

At the End of Year 1,the Following Information Is Available