Question

Cal's market has return on equity (ROE) of 15%. What does this mean?

A) The company earned 15% on its stock investments
B) The company's net income is 15% of shareholders' equity
C) The company's equity increased by 15%
D) The company's market value increased by 15%

Answer 1

Return on Equity (ROE) is a financial ratio that measures the profitability of a company in relation to its shareholders' equity. An ROE of 15% indicates that Cal's market has earned a net income of 15% of its shareholders' equity.

Step-by-step explanation:

Return on Equity (ROE) is a financial ratio that measures the profitability of a company in relation to its shareholders' equity. It indicates how efficiently a company generates profits from the investment made by its shareholders.

In this case, if Cal's market has an ROE of 15%, it means that the company's net income is 15% of its shareholders' equity. This percentage represents the return that the company has generated on the investment made by its shareholders.

For example, if Cal's market has shareholders' equity of $1,000,000 and an ROE of 15%, it means that the company has earned a net income of $150,000 ($1,000,000 x 0.15).