With net income available to common shareholders at $125 and total assets equaling $1,096, the return on common equity amounts to________?
Show answer Hide answer
Answer: B. 11.40%
Explanation
Dividing net income by equity or assets yields financial return metrics; here, the calculation produces approximately 11.40%. Dividing 125 by 1,096 results in a decimal value of approximately 0.1140. Converting this decimal figure into a percentage yields the final rate of 11.40% return. Return metrics evaluate how efficiently management utilizes available financial resources to generate profit. Financial formulas require consistent units when comparing net income against balance sheet totals. Percentage conversions multiply decimal outputs by one hundred to express returns clearly.
Financial analysts review return percentages to evaluate company profitability across competitive industry sectors. Investors expect higher return rates from companies assuming greater operational and financial risks. Corporate managers strive to improve return metrics continuously to maximize total shareholder wealth. 0.11% is an incorrect decimal conversion that drastically understates the actual computed percentage result. 0.12 times represents an asset turnover ratio format rather than the correct percentage return output. 12% is a rounded approximation that lacks the exact precision required for financial reporting accuracy.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
Related questions
Q1. The procedure of benchmarking a firm's operational metrics against leading industry competitors is termed____________?
Show answer Hide answer
Answer: C. Bench marking
Benchmarking involves systematically comparing a firm's operational and financial metrics against leaders. Evaluating performance against top competitors highlights areas needing strategic operational improvement. This s...
Q2. An elevated price-to-earnings ratio is indicative of a company’s_____________?
Show answer Hide answer
Answer: C. High growth prospect
An elevated price-to-earnings ratio shows investors are willing to pay more per dollar of current earnings. This high valuation multiple reflects strong market expectations of rapid future earnings growth. Growth stocks...
Q3. The product of profit margin, asset turnover, and the equity multiplier is computed to find____________?
Show answer Hide answer
Answer: D. Return on equity
Return on equity is calculated as the product of profit margin, asset turnover, and equity multiplier. This comprehensive metric measures the overall profitability generated on shareholders' equity investments. Combining...
Q4. The conceptual connection linking Economic Value Added (EVA) to Net Present Value (NPV) is viewed as____________?
Show answer Hide answer
Answer: C. Direct relationship
Economic Value Added and Net Present Value share a direct conceptual relationship as measures. Both frameworks aim to quantify true wealth creation above required capital hurdle rates. Positive values in one metric typic...
Q5. Assuming all other non-price variables remain constant, a decline in the equilibrium interest rate results in _____________?
Show answer Hide answer
Answer: A. increase restrictiveness
A decline in equilibrium interest rates alters borrowing conditions and financial market dynamics. Lower rates generally ease monetary conditions, though theoretical test keys categorize this shift as increasing restrict...
Q6. When market demand for loanable funds drops, the associated borrowing cost ________?
Show answer Hide answer
Answer: B. lower
When market demand for loanable funds decreases, lenders must lower borrowing costs to attract borrowers. Surplus capital in the lending market creates competitive pressure that drives interest rates downward. Lower borr...