The rate of return on shareholders' equity indicates
A)the margin of safety provided to creditors.
B)the extent of "trading on the equity" or financial leverage.
C)profitability without regard to how resources are financed .
D)the effectiveness of employing resources provided by owners.

Question

Quizplus · Accepted Answer

The rate of return on shareholders' equity measures how profitable a company is in generating a return on the investment made by the owners. This indicates how effectively the company is employing the resources provided by the owners. Therefore, option D is the best choice. Options A, B, and C are not accurate descriptions of the rate of return on shareholders' equity.

The Rate of Return on Shareholders' Equity Indicates