19.2.3.d. Return on Equity (ROE)

Try these first

1. 1.

   What is ROE and how is it calculated?

   Hint

   Think about what ROE measures in terms of company performance.

2. 2.

   What does a high ROE indicate?

   Hint

   Consider the implications of a company effectively using its resources.

3. 3.

   What does ROE stand for?

   • Return on Earnings
   • Return on Equity
   • Return on Expenses

   Hint

   Think about what the measure is about – it involves equity!

4. 4.

   True or False: A low ROE is always detrimental for a company.

   • True
   • False

   Hint

   Consider the context of the industry.

5. 5.

   A firm has a net income of $1,200,000 and shareholders' equity of$5,000,000. Calculate the ROE and explain its significance.

   Hint

   Start by plugging in the numbers into the formula.

6. 6.

   Considering two companies within the same industry, Company A has an ROE of 15% and Company B has 10%. Discuss what these figures might imply for potential investors.

   Hint

   Reflect on how these ratios may affect investor choices.