The rate earned on stockholders' equity is equal to a company's net income divided by its stockholders' equity, expressed as a percentage. For example, if the net income is $1 million and stockholders' equity is $10 million, the rate earned on stockholders' equity is equal to 100 multiplied by ($1 million divided by $10 million), or 10 percent.
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When the rate of return on total assets ratio is greater than the rate of return on common stockholders' equity ratio, the management of the company has effectively used leverage. False ...
In computing the ratio of sales to assets, long-term investments are excluded from average total assets. True 34. The rate earned on total assets measures the profitability of total assets, without considering how the assets are financed. True
The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends. False 32. A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.
In a common-sized income statement, each item is expressed as a percentage of net income. False ... In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
Stockholders' equity is the equity section of the balance sheet for a corporation.
Components that are specific to the stockholders' equity section of the balance sheet include paid-in capital, retained earnings, and dividends. These components are necessary to describe the net worth of an organization.
A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors. True. ... In computing the ratio of sales to assets, long-term investments are excluded from average total assets.
The dividend yield rate is equal to the dividends per share divided by the par value per share of common stock. False. ... Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations.
In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets. False. ... Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.
The profits of a publicly listed corporation (less dividends on preference stock) are measured by the amount of capital spent in common securities, calculated as a ratio. It is a test of how efficiently the business spends the capital raised in it. A strong return on common equity suggests that the business invests wisely and is expected to be profitable; a poor return on common equity implies the reverse. Consequently, strong yields on common equity lead to higher market values. Many experts agree that the return on common equity is an incredibly significant predictor of the performance of publicly listed firms.
The ROE has a benefit when comparing the firms between each other. This tends the firm to reach a higher ROE than the other firm. It’s mostly luck than skill and used for the investors whom gets insights to invest their money in a particular profitable firm. Some of the advantages of ROE are: