Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Return on Equity (ROE)

Financial Accounting

14. Financial Statement Analysis

Ratios: Return on Equity (ROE)

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Multiple Choice

From the view of a shareholder, the measure of competitive advantage that matters most is return on:

Sales

Investment

Assets

Equity

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Verified step by step guidance

Understand the concept of 'Return on Equity (ROE)': ROE measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. It is a key metric for shareholders to assess the efficiency of their investment.

Recall the formula for ROE: ROE = (Net Income) / (Shareholders' Equity). This formula shows the relationship between the company's net income and the equity provided by shareholders.

Identify the components needed to calculate ROE: You need the company's net income (found on the income statement) and the shareholders' equity (found on the balance sheet).

Analyze why ROE is important for shareholders: ROE directly reflects the return generated on their investment, making it a critical measure of competitive advantage from their perspective.

Compare ROE to other metrics: While return on sales, investment, and assets are important, ROE specifically focuses on the shareholders' perspective, making it the most relevant measure for evaluating competitive advantage in this context.