Which of the following best indicates how much shareholder wealth is being created by company managers?
A)Return on investment divided by total assets.
B)Return on investment divided by total liabilities.
C)Return on investment divided by retained earnings.
D)Economic value added (EVA).

Question

Quizplus · Accepted Answer

Economic value added (EVA) is the best measure of how much shareholder wealth is being created by company managers, as it takes into account the cost of capital and compares it to the return on investment. This measure shows whether the company is generating more wealth than it costs to finance the business, and therefore is adding value to shareholders. Options A, B, and C do not take into account the cost of capital and therefore may not accurately reflect the level of wealth created for shareholders.

Which of the Following Best Indicates How Much Shareholder Wealth