When an investor is evaluating whether to purchase stock in a company, which of the following considerations is most important?
A)Will working capital be sufficient to support growth?
B)Will the key ratios be reported on the balance sheet?
C)Will cash flows from operations exceed net income in the coming years?
D)Will the company earn a satisfactory return on the amount invested by stockholders?

Question

Quizplus · Accepted Answer

The most important consideration for an investor when purchasing stock in a company is whether the company will earn a satisfactory return on the amount invested by stockholders. This measure, known as return on equity (ROE), indicates how effectively a company is using shareholders' funds to generate profits. A low ROE may indicate that the company is not using its resources efficiently and may not be a good investment. While working capital, key ratios, and cash flows are important factors to consider, they are secondary to the company's ability to generate a return for its investors.

When an Investor Is Evaluating Whether to Purchase Stock in a Company