Concept Introduction:
Return on total Assets:
The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Return on Equity:
Return on Equity is the
The Average stock holder's equity calculated with the help of following formula:
To Indicate:
The Difference between the Return on Total assets and Return on Equity and the higher value.s
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Survey of Accounting (Accounting I)
- Which of the following is true about earnings management? A. It works within the constraints of GAAP. B. It works outside the constraints of GAAP. C. It tries to improve stakeholders views of the companys financial position. D. Both B and C E. Both A and Carrow_forwardExplain how the Du Pont system of analysis breaks down return on assets. Also explain how it breaks down return on stockholders’ equity.arrow_forward1. difference b/w creditors and stockholders 2. why does "maximizing firm value" equal to "maximizing stockholders' equity"?arrow_forward
- The cost of equity is ________. a.equal to the amount of asset turnover b.the interest associated with debt c.the weighted average cost of capital d.the rate of return required by investors to incentivize them to invest in a companyarrow_forwardWhich of these would best improve a firm's liquidity position? *a. Lower profitabilityb. Higher capital spendingc. Higher need for noncash current assets on the balance sheetd. Declaration of stock dividendsarrow_forwardWhich is a component of stockholder's equity? a. Sinking funds b. Deferred charges c. Accumulated other comprehensive income d. Realized capitalarrow_forward
- A business can be valued by capitalizing its earnings stream. Does one measure make more sense than the others? What factors would make a stock worth more or less than your calculated value?arrow_forward19. Which of the following statements relating to earnings per share is not true? __________ It is an often-reported measure of the potential return to stockholders. It is a financial measure. It is a cash measure. It is based on the accrual basis of accounting.arrow_forwardWhich of the statements are not correct Select one: a. Profits refers to earnings before Interest and Taxes b. Investment decisions relate to pattern of financing c. Dividend pay out ratio refers to what proportion is paid to shareholders d. Borrowed funds are relatively cheaper than shareholders’ fundsarrow_forward
- Which of the following statements about stockholders' equity is not true? Select one: Stockholders' equity may be increased or decreased by Accumulated Other Comprehensive Income. Stockholders' equity is decreased by Treasury Stock. Stockholders' equity is decreased by a deficit in Retained Earnings. Stockholders' equity is increased by Additional Paid in Capital.arrow_forwardWhich does not affect total shareholders’ equity? a. Stock dividend b. Scrip dividend c. Cash dividend d. Property dividendarrow_forwardThe return on equity is calculated using which of the following formulas? Multiple Choice Net income Stockholders' equity Net income - Average stockholders' equity Net income ÷ Common Stock Net income ÷ Retained earningsarrow_forward
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