Return on equity is referred to by the acronym ROI. is an activity ratio. shows how much after-tax profits are generated by each dollar of sales. measures the rate of return on the book value of shareholders' total investment in the company. is a leverage ratio.

Question

Business

Eleanor

9 March, 13:12

Return on equity is referred to by the acronym ROI. is an activity ratio. shows how much after-tax profits are generated by each dollar of sales. measures the rate of return on the book value of shareholders' total investment in the company. is a leverage ratio.

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Answers (2)

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Judith Hess · Answer 1

measures the rate of return on the book value of shareholders' total investment in the company.

Explanation:

Return on equity is referred to by the acronym ROI measures the rate of return on the book value of shareholders' total investment in the company.

The formula for calculating Return on Investment is Net Profit as a percentage of Total Investment.

Total investment here refers to net worth, which is total assets minus total liabilities; which gives the same value as equity.

That explains why the measure is referred to as Return on equity.

Wilkerson · Answer 2

Return on equity is ROE (not ROI), and it measures the rate of return on the book value of shareholders' total investment in the company.

Explanation:

Return on equity (ROE) is calculated by dividing net profits by stockholders' equity.

Return on investment (ROI) is calculated by dividing net profits by total assets.

ROE and ROI are not the same, they are both profitability ratios, but they measure different things.

ROE = ROI x EM

EM is the equity multiplier and equals total assets / stockholders' equity. ty.