1.
Return on Equity (ROE) is calculated as:
A
Net Profit / Total Assets
B
Net Profit / Shareholders' Equity
C
Gross Profit / Revenue
D
EBIT / Total Capital Employed
Answer and explanation
Correct Answer: B — Net Profit / Shareholders' Equity
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.