[amp_mcq option1=”Ratio of return on total assets” option2=”Ratio of return of fixed assets” option3=”Ratio of return on shareholder’s equity” option4=”All of the above” correct=”option1″]
The correct answer is: A. Ratio of return on total assets
The ratio of return on total assets (ROA) is a profitability ratio that measures how profitable a company is relative to its total assets. It is calculated by dividing net income by average total assets. A high ROA indicates that a company is generating a lot of profit from its assets.
The ratio of return on fixed assets (ROFA) is a profitability ratio that measures how profitable a company is relative to its fixed assets. It is calculated by dividing net income by average fixed assets. A high ROFA indicates that a company is generating a lot of profit from its fixed assets.
The ratio of return on shareholder’s equity (ROE) is a profitability ratio that measures how profitable a company is relative to its shareholder’s equity. It is calculated by dividing net income by average shareholder’s equity. A high ROE indicates that a company is generating a lot of profit from its shareholder’s equity.
Of the three ratios, ROA is the best measure of operating performance because it takes into account all of a company’s assets, including both fixed and current assets. ROFA and ROE are also important measures of profitability, but they do not take into account all of a company’s assets.