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What does a negative return on equity (ROE) indicate?

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Question: What does a negative return on equity (ROE) indicate?

Options:

  1. The company is profitable
  2. The company is losing money
  3. The company has high debt
  4. The company is growing

Correct Answer: The company is losing money

Solution: 

A negative return on equity (ROE) indicates that the company is losing money relative to its equity.

What does a negative return on equity (ROE) indicate?

Practice Questions

Q1
What does a negative return on equity (ROE) indicate?
  1. The company is profitable
  2. The company is losing money
  3. The company has high debt
  4. The company is growing

Questions & Step-by-Step Solutions

What does a negative return on equity (ROE) indicate?
  • Step 1: Understand Return on Equity (ROE) - It measures how well a company uses its shareholders' equity to generate profit.
  • Step 2: Know What Negative ROE Means - A negative ROE means the company is losing money.
  • Step 3: Relate ROE to Shareholders' Equity - Losing money decreases the value of shareholders' investment.
  • Step 4: Conclusion - A negative ROE indicates poor financial performance.
  • Return on Equity (ROE) – ROE is a financial metric that measures a company's profitability relative to shareholders' equity.
  • Negative Financial Performance – A negative ROE indicates that a company is not generating profit from its equity, suggesting financial distress.
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