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Basic Question 5 of 8
Which one of the following does the Return on Common Equity (ROCE) ratio measure?
B. The degree to which the company uses common shareholders' capital to finance assets
C. How a company performs in using shareholders' capital to generate earnings
D. The profitability of operations, without considering how the company's assets are financed
A. The proportion of net operating profit after taxes (NOPAT) that belongs to common shareholders
B. The degree to which the company uses common shareholders' capital to finance assets
C. How a company performs in using shareholders' capital to generate earnings
D. The profitability of operations, without considering how the company's assets are financed
User Contributed Comments 8
| User | Comment |
|---|---|
| Gina | or (NI-Preferred Dividends)/Avg Common Equity |
| haarlemmer | I was just wondering whether answer C would be common shareholders or simply shareholders. |
| kiwags | C is vague. Shareholders' capital could include preferred stock too. |
| desertfox27 | when you would say shareholders, they common stock owners, the real owner of the company. they own share of stocks, or common shares, thus, shareholders. |
| kutta2102 | desertfox27 and kiwags: the question specifically talks about "common" shareholders - this would exclude preferred shareholders. |
| papajeff | these are dirty questions, toughest material so far in level 1 in my opinion |
| johntan1979 | I agree with the general sentiment here... C is not 100% accurate, but seems to be the best available option here. Shareholder = individual owner of at least one share in a corporation, and that includes preferred shares |
| Akiva | Could anyone explain, how we get: ROCE = ROA * Common earnings leverage * Fin structure leverage ? ROA uses only NI, not NI - Preffered stocks |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret activity, liquidity, solvency, and profitability ratios
describe relationships among ratios and evaluate a company using ratio analysis
CFA® 2024 Level I Curriculum, Volume 3, Module 11.