Wealth-Forum e-zine

Test your understanding of this topic

Q1.

Return on equity can be erroneous if the management manipulates the earnings.

a. True

b. False

Q2.

Return on capital employed considers:

a. only equity

b. only long term debt

c. both equity and long term debt

Q3.

RoCE is a good measure to understand :

a. Whether the company is making good use of retained shareholder earnings

b. How well the company is using total funds at its disposal to generate earnings from its business

c. Whether the company has used an appropriate mix of debt and equity in its capital structure

Q4.

In which of the following is RoE less useful?

a. To determine the profitability of a company in terms of total shareholder funds used

b. To compare firms across different industries

c. To compare firms across a given industry

Q5.

Return on equity indicates the:

a. the returns generated by the company on the equity capital raised from the shareholders

b. the returns generated by the company on the reinvested earnings.

c. the returns generated by the company on the total capital employed

d. Both a and b