Return on equity is net income minus taxes divided by ______.Multiple choice question.current liabilitiesnet salescommon stock outstandingtotal owners' equity
Question
Return on equity is net income minus taxes divided by ______.
- current liabilities
- net sales
- common stock outstanding
- total owners' equity
Solution
Break Down the Problem
- Identify the formula for Return on Equity (ROE).
- Determine which choice correctly fits the denominator of the ROE formula.
Relevant Concepts
The formula for Return on Equity is given by:
Analysis and Detail
- Net Income - Taxes: This refers to the profit a company makes after paying taxes.
- Total Owners' Equity: This represents the total net assets of a company, which is the amount that the owners have invested.
Verify and Summarize
From the relevant concepts, it’s clear that the denominator in the formula for Return on Equity is Total Owners' Equity.
Final Answer
The answer is total owners' equity.
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