[amp_mcq option1=”return on turnover” option2=”return on stock” option3=”return on assets” option4=”return on equity” correct=”option4″]
The correct answer is D. return on equity.
Return on equity (ROE) is a measure of a company’s profitability. It is calculated by dividing net income by shareholders’ equity. ROE is a good measure of how well a company is using its equity to generate profits.
Profit margin is a measure of how much profit a company makes on each dollar of sales. It is calculated by dividing net income by revenue. Profit margin is a good measure of a company’s pricing power and efficiency.
Assets turnover is a measure of how efficiently a company uses its assets to generate sales. It is calculated by dividing revenue by average total assets. Assets turnover is a good measure of a company’s asset management efficiency.
Equity multiplier is a measure of how much debt a company uses to finance its assets. It is calculated by dividing total assets by shareholders’ equity. Equity multiplier is a good measure of a company’s financial risk.
The formula for ROE is:
ROE = Net income / Shareholders’ equity
The formula for profit margin is:
Profit margin = Net income / Revenue
The formula for assets turnover is:
Assets turnover = Revenue / Average total assets
The formula for equity multiplier is:
Equity multiplier = Total assets / Shareholders’ equity
Therefore, profit margin multiplied by assets turnover multiplied by equity multiplier is used to calculate return on equity.