NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
In equity analysis, which measure compares a company's net profit with the shareholders' funds employed in the business?
Return on equity compares net profit with shareholders' funds. It shows how efficiently management earns profit on the capital contributed by owners. The other ratios measure dividend distribution, ability to service interest, or market valuation relative to book value.
- AReturn on equityCorrect
- BDividend payout ratio
- CInterest coverage ratio
- DPrice-to-book ratio
Explanation
Return on equity is net profit divided by shareholders' equity, showing profitability on owners' capital. Payout ratio relates dividends to profit, interest coverage relates operating profit to interest, and price-to-book relates market price to book value.
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