Which metric measures the profitability of ownership's investment, stated as a percentage?

• A. Net income
• B. Total assets
• C. Return on Equity
• D. Earnings per share

Answer: (C)

This question tests a measure of how efficiently owners’ capital is turned into profit, expressed as a percentage: Return on Equity. ROE shows how much net income is generated for each dollar of shareholders’ equity, typically calculated as net income divided by average shareholders’ equity and multiplied by 100. It’s a key indicator of the profitability of the owners’ investment and is useful for comparing performance over time or across companies. Net income is total profit, not a percentage of owners’ investment. Total assets indicate size, not profitability relative to equity. Earnings per share reflects profit per share and is per-share rather than a return on the owners’ total invested capital.