Financial Ratios in Business Finance : Practice MCQ Questions & Answers with Explanations

The correct answer is B: Net Profit / Shareholders' Equity.

ROE measures how effectively management is using shareholders' equity to generate profit. A higher ROE indicates more efficient use of equity capital. It is one of the most important profitability ratios used by investors to assess a company's financial performance.

The correct answer is D: Return on capital employed (ROCE).

ROCE measures how efficiently a company generates profit from its capital. It focuses on overall profitability and operational efficiency rather than revealing the proportion of debt vs equity in the capital structure. Debt-equity ratio, financial leverage, and capital gearing ratio all directly analyse capital structure by comparing debt and equity financing.