Return on equity equals
A) net income /sales
B) sales/stockholders' equity
C) net income/total assets
D) net income/sales times sales/stockholders' equity

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated as net income divided by shareholders' equity. However, in order to get to that point, net income must first be calculated as a percentage of sales (net income divided by sales). Then, sales must be divided by shareholders' equity to get a ratio that reflects how much shareholders' equity is generating in sales. Then, these two ratios can be multiplied together to get ROE. So, the correct formula is net income/sales times sales/stockholders' equity.

Return on Equity Equals