Question

The return on shareholders' equity ratio is computed by dividing

O net income by average shareholders' equity.
O net income by earnings per share.
O earnings per share by dividends per share.
O total shareholders' equity by total assets.

Answer 1

The return on shareholders' equity ratio is calculated by dividing net income by average shareholders' equity, helping to assess a company's profitability.

Step-by-step explanation:

The return on shareholders' equity ratio is computed by dividing net income by average shareholders' equity. This financial metric is essential for investors and analysts as it indicates how efficiently a company is using its equity base to generate profits. The question alludes to a broader understanding of company performance, including aspects like dividends, capital gains, and overall returns, as highlighted in the provided context about S&P 500 index returns over recent decades.