Question: What is the formula for calculating return on equity (ROE)?

Options:

1. Net income / Total assets
2. Net income / Shareholder\'s equity
3. Total revenue / Total assets
4. Net income / Total liabilities

Correct Answer: Net income / Shareholder\'s equity

Solution:

Return on equity (ROE) is calculated by dividing net income by shareholder\'s equity, indicating how effectively management is using a company’s assets to create profits.