We compute the return on equity ratio by dividing net income by ending stockholders' equity.

Question

Quizplus · Accepted Answer

The return on equity ratio is computed by dividing net income by average stockholders' equity. This is because the average stockholders' equity reflects the average amount of funds that the company's owners have invested in the business over the course of the year, and therefore provides a more accurate measure of how effectively the company is generating profits from the resources that have been entrusted to it.

We Compute the Return on Equity Ratio by Dividing Net