Return on equity is driven by (1)the spread between the operating return on assets and the interest rate,and (2)changes in the debt ratio.

Question

Quizplus · Accepted Answer

Return on equity (ROE) is calculated by dividing net income by shareholder equity. The spread between the operating return on assets and the interest rate affects the net income and thus impacts ROE. Additionally, changes in the debt ratio can affect the shareholder equity component of the ROE calculation. Therefore, both factors can impact ROE.

Return on Equity Is Driven by (1)the Spread Between the Operating